Reinsurance Focus

The Colorado Division of Insurance has adopted a comprehensive revision of its regulations with respect to finite reinsurance transactions. The revisions include the repeal of existing regulations regarding Ceding Reinsurance Agreements, new regulations for Credit for Reinsurance, new regulations for Life and Health Reinsurance Agreements, and new regulations for Property and Casualty Reinsurance Agreements. Separately, the Division also adopted regulations establishing standards regarding the placement of insurance by producers and the qualification of insurers pursuant to the Colorado Nonadmitted Insurance Act.

The SEC has filed a civil action against three former executives of Renaissance Reinsurance Ltd., alleging that they were involved in fraudulent finite reinsurance transactions to improve the company's financial statements and earnings. The case was filed in the Southern District of New York. SEC v. Stanard, Merritt and Cash, Case No. 06-7736 (Sept. 27, 2006).

A Court has denied a motion to dismiss claims alleging that KPMG Bermuda had failed to perform adequate audits of Annuity & Life Re (Holdings), Ltd. since the company had failed properly to account for certain retrocessional insurance. Schnall v. Annuity & Life Re, Case No. 02-2133 (D. CT. Aug. 30, 2006). The Court had previously dismissed similar claims asserted against KPMG US, since the audits were performed by KPMG Bermuda.

Tokio Marine & Nichido Fire Insurance Co. has arranged reinsurance cover for approximately $200 million of typhoon risks by means of a securitization. Swiss Re accepted reinsurance of the risks and transferred the risks to a special purpose Cayman Islands company which issued the securities. The five year, BB+ rated securities transaction was designed and sold with the assistance of SwissRe Capital Markets Corporation.

Artemis describes iteself as “the Alternative Risk Transfer Portal.” It contains a directory describing numerous alternative risk transfer financing transactions, and provides visitors with an oportunity to subscribe to a news feed of alternative risk transfer deals.

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 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.

A District Court has dismissed the First Amended Class Action Complaint against KPMG US relating to audit reports relating to the annual financial statements of Bermuda-based Annuity & Life Re (Holdings), Ltd. The Complaint alleged that Annuity & Life Re understated its liabilities and overstated its profits and failed to comply with Generally Accepted Accounting Principles, and that KPMG failed to follow Generally Accepted Auditing Standards in its audits of the company. The Court found that the audits were performed by KPMG Bermuda, rather than KPMG US, and that KPMG US did not control the audit process or make any independent misrepresentations. Schnall v. Annuity & Life Re (Holdings) Ltd., Case No. 02-2133 (D. CT. Aug. 10, 2006).

The United States Court of Appeals for the District of Columbia Circuit has affirmed a summary judgment in favor of the Society of Lloyd's, enforcing an English judgment against a Lloyd's Name who refused to sign on with and pay reinsurance premium to Equitas. Society of Lloyd's v. Siemon-Netto, Case no. 04-7214 (D.C. Cir. August 8, 2006). At oral argument, the Names made it clear that “the underlying basis of their defense is their belief that the English courts have a 'bias and prejudice in favor of Lloyd's under circumstances which make it impossible for a Name to win.'” Under the Uniform Foreign Money Judgments Recognition Act, a foreign judgment may not be enforced if it was “rendered under a system that does not provide impartial tribunals or procedures compatible with the requirements of due process of law.” The Names did not go so far as to seek the application of this principle, but the Court noted that if they had attempted to do so, they would have failed. The only evidence of “bias and prejudice” was that other Names who had advanced the same position as Appellants had lost their cases, and the mere fact that they had lost did not establish improper partiality. Indeed, the Court noted that “the fact that Names have lost similar (albeit not identical) cases in eight United States Courts of Appeals … would require us to reach the same conclusion regarding American courts.” With that closing statement, the Court affirmed the District Court's ruling. Jorden Burt represented the Society of Lloyd's in this case.

The United States Court of Appeals for the District of Columbia Circuit has affirmed a summary judgment in favor of the Society of Lloyd's, enforcing an English judgment against a Lloyd's Name who refused to sign on with and pay reinsurance premium to Equitas. Society of Lloyd's v. Siemon-Netto, Case no. 04-7214 (D.C. Cir. August 8, 2006). At oral argument, the Names made it clear that “the underlying basis of their defense is their belief that the English courts have a 'bias and prejudice in favor of Lloyd's under circumstances which make it impossible for a Name to win.'” Under the Uniform Foreign Money Judgments Recognition Act, a foreign judgment may not be enforced if it was “rendered under a system that does not provide impartial tribunals or procedures compatible with the requirements of due process of law.” The Names did not go so far as to seek the application of this principle, but the Court noted that if they had attempted to do so, they would have failed. The only evidence of “bias and prejudice” was that other Names who had advanced the same position as Appellants had lost their cases, and the mere fact that they had lost did not establish improper partiality. Indeed, the Court noted that “the fact that Names have lost similar (albeit not identical) cases in eight United States Courts of Appeals … would require us to reach the same conclusion regarding American courts.” With that closing statement, the Court affirmed the District Court's ruling. Jorden Burt represented the Society of Lloyd's in this case.