Reinsurance Focus

On November 28, 2012, the New York Department of Financial Services published a notice of proposed rulemaking (with no hearing scheduled) regarding the Credit for Reinsurance regulations to more closely align its program with the recently amended NAIC Credit for Reinsurance Model Law and Regulations. The revisions to New York’s regulations are substantially similar to Section 8 of the Model Regulations, but also require reinsurance contracts to include terms regarding venue and choice of law. Section 8 and New York’s proposed amendment set forth the rating schedule used to determine reduced collateral requirements for reinsurers domiciled outside of the U.S. As previously reported by Jorden Burt LLP, the NAIC amended the Model Law and Regulations in November 2011 to add Section 8 and New York promulgated its Credit for Reinsurance regulations in November 2010 when it became only the second state to adopt a ratings-based framework. The comment period for the proposed amendments to New York’s Credit for Reinsurance regulations ends on January 12, 2013. N.Y. Comp. Codes R. & Regs. tit. 11, § 125 (proposed Nov. 28, 2012).

This post written by Abigail Kortz.

See our disclaimer.

The NAIC has had a special sub-group reviewing the regulation and use of captive insurers and special purpose vehicles. John Pitblado reports in a Special Focus article on the scope and development of this review.

This post written by John Pitblado.

See our disclaimer.

On September 7, 2012, the governor of California signed into law two bills implementing amendments to the NAIC Credit for Reinsurance Model Law and NAIC Insurance Holding Company System Regulatory Model Act. The former, SB 1216, allows full credit to insurers for insurance ceded to unauthorized reinsurers that satisfy certain financial strength ratings, without the need to post full collateral. It also contains provisions increasing oversight of the nature and extent of risk ceded by domestic insurers. The California law differs from the NAIC Model, however, by authorizing the insurance commissioner to disallow credit for reinsurance under certain circumstances, notwithstanding technical compliance with the new requirements.

The second bill, SB 1448, increases oversight over an insurer’s holding company system, specifically over “enterprise risk” defined as “any activity, circumstance, or event or series of events involving one or more affiliates of an insurer that, if not remedied promptly, is likely to have a material adverse effect upon the financial condition or liquidity of the insurer or its insurance holding company system as a whole.” The law requires, among other things, the filing of annual enterprise risk reports, and a statement that the insurer’s board of directors is responsible for overseeing corporate governance and internal controls, and that the insurer’s officers or senior management have approved, implemented, and continue to maintain and monitor corporate governance and internal control procedures. The law also authorizes the commissioner to establish and participate in a supervisory college to determine compliance for insurance holding company systems with international operations.

Both laws go into effect January 1, 2013. The credit for reinsurance law, however, will be deemed automatically repealed on January 1, 2016, unless separate legislation provides otherwise.

This post written by Michael Wolgin.

See our disclaimer.

We previously reported on the NAIC’s inquiry into the potentially abusive use of captives to avoid certain accounting rules. As part of that inquiry, the NAIC’s Financial Condition (E) Committee’s Captives and Special Purpose Vehicle Use Subgroup has called for comments on its white paper titled Captives and Special Purpose Vehicles. Comments are due by the close of business on November 16, 2012. The white paper describes some disagreement among different states on issues relating to captives. The end of the comment period is shortly before the NAIC’s scheduled fall meeting.

This post written by Rollie Goss.

See our disclaimer.

The NAIC has released summaries of the minutes of the meetings of its Reinsurance Task Force and Surplus Lines Task Force, both of which took place on August 13, 2012, during the Summer National Meeting in Atlanta.

The Reinsurance Task Force adopted recommendations regarding accreditation standards, heard status updates on implementation of the revised credit for reinsurance models, approved establishing a subgroup regarding quota share reinsurance contracts, addressed ongoing international reinsurance issues, including US/EU dialogue and activities of the International Association of Insurance Supervisors, heard updates from the Captive and Special Purpose Vehicle Use Subgroup on alternative risk transfer in relation to existing state law, and heard a status update from The Financial Condition Committee regarding ceding reinsurers in receivership.

The Surplus Lines Task Force created a Surplus Lines Requirements Subgroup, to research issues related to eligibility requirements, which were addressed at the meeting.

This post written by John Pitblado.

See our disclaimer.

In a case we have reported on previously, AIG purported to settle class action securities law claims arising from alleged finite reinsurance transactions between it and Gen Re. The district court, however, denied the parties’ joint motion for approval of the settlement, finding that it could not certify a settlement class because the “fraud-on-the-market” theory used to prove reliance was not viable under the facts of the case, resulting in a failure to satisfy the predominance requirement of Federal Rule of Civil Procedure 23(b)(3). The Second Circuit reversed, however, finding that the failure of the fraud-on-the-market theory was relevant only to a manageability analysis, and not to a predominance analysis. Since a court need not engage in a manageability analysis to certify a settlement class under the Supreme Court’s Amchem case, a settlement class could be certified. In re American International Group Securities Litigation, No. 10-4401-cv (2d Cir. Aug. 13, 2012)

This post written by John Pitblado.

See our disclaimer.

On August 2, 2011, we reported on a decision by the United States Court of Appeals for the Second Circuit to vacate the criminal convictions of Gen Re and AIG executives stemming from an allegedly fraudulent finite reinsurance transaction designed to improve AIG’s financial statements. On June 22, 2012, the defendants entered into agreements with prosecutors to defer prosecution and dismiss the indictments after passage of one year, subject to the defendants’ respective payment of fines ranging from $250,000 to $100,000, and compliance with other conditions. The agreements identified “relevant considerations” to their execution, namely, (a) the Second Circuit’s vacatur decision, (b) the 12 months time that has now elapsed since the defendants’ conduct, (c) the significant resources required to conduct a retrial, (d) the defendants’ payment of fines, (e) SEC penalties, and (f) defendants’ admission that certain “aspects” of the reinsurance transaction were fraudulent. United States v. Ferguson, Case No. 3:06CR137 (USDC D. Conn. June 22, 2012).

This post written by Michael Wolgin.

See our disclaimer.

Several states have recently withdrawn from the Nonadmitted Insurance Multi-State Agreement (“NIMA”), the interstate compact sponsored by the NAIC to collect and allocate surplus lines tax revenues consistent with Dodd Frank’s Nonadmitted and Reinsurance Reform Act of 2010 (“NRRA”). We have reported earlier on NIMA’s development and progress. States that have withdrawn include Alaska, Connecticut, Mississippi, Nebraska and Hawaii. Departing states have cited several reasons for withdrawing: the lack of a financial benefit from participating; the increased burden and cost in overseeing and auditing NIMA’s Clearinghouse; increased costs imposed on brokers and insureds from the Clearinghouse’s service fee; and conflict with state insurance laws on reporting requirements. Mississippi is among the states withdrawing notwithstanding that its insurance commissioner was a principal officer of NIMA. NIMA’s remaining members include only Florida, Louisiana, Nevada, Puerto Rico, South Dakota, Utah and Wyoming.

This post written by Ben Seessel.

See our disclaimer.

After settling with AIG for $1 billion, the New York Attorney General remains in pursuit of two former AIG executives—former CEO Maurice “Hank” Greenberg and former CFO Howard Smith—in connection with their alleged roles in a finite reinsurance transaction between AIG and Gen Re and a transaction between AIG and Capco Reinsurance Company, an offshore shell company that AIG allegedly used to disguise unfavorable loss ratios from the investing public. The appellate court affirmed the denial of defendants’ motion for summary judgment on the AG’s claims, which are brought under New York’s Martin Act and Executive Law section 62(12). The appellate court held that the claims are not preempted by federal securities laws and that triable issues exist based on the record evidence. The court also reversed the trial court’s grant of summary judgment to the AG on liability with respect to the Capco transaction. State of New York v. Greenberg, No. 401720/05 (N.Y. App. Div. May 8, 2012).

This post written by Ben Seessel.

See our disclaimer.

At the recent NAIC Spring Meeting, the E Committee’s Reinsurance Task Force exposed for comment drafts of two documents relating to the implementation of the recently revised credit for reinsurance Model Act and Model Regulation: (1) a memorandum discussing implementation issues; and (2) a discussion of changes to the accreditation criteria.

This post written by Rollie Goss.

See our disclaimer.