new reinsurance-related and arbitration developments from Carlton Fields Jorden Burt
Archive for the ‘REINSURANCE TRANSACTIONS’ Category.
We posted previously on the Mariah Re cat bond lawsuit. The court recently dismissed the Amended Complaint in that action with prejudice. Rollie Goss discusses this opinion in a Special Focus article titled Cat Bond Litigation: Unambiguous Bond Documents Cause Court To Dismiss With Prejudice Complaint Seeking to Claw Back Payments Made From a Cat Bond Reinsurance Trust.
This post written by Rollie Goss.
On September 11, 2013, the Southern District of New York approved the final settlement in the protracted class litigation regarding allegedly artificially inflated prices for AIG securities. This final settlement resolves all claims against defendant Gen Re with a settlement fund of $72 million for a class of persons and entities who purchased AIG securities from October 28, 1999 through April 1, 2005. Lead counsel was awarded $6.5 million in attorneys’ fees (9.09% of the settlement fund) and $525k in expenses. Any funds not claimed by class members will be distributed to a 501(c)(3) not-for-profit rather than returned to the defendant. The three previous settlements resolved claims against PwC, AIG, and Starr International Company. In re American International Group, Inc. Securities Litigation, 04 Civ. 8141 (DAB) (S.D.N.Y. Sept. 11, 2013).
This post written by Abigail Kortz.
See our disclaimer.
The major reinsurance brokers have published their analyses of the reinsurance market for catastrophe risks during fourth quarter of 2013, the catastrophe bond market and predictions for renewal rates for traditional reinsurance during early 2014. These analyses generally predict declines in renewal rates for traditional reinsurance for cat risks in the neighborhood of 10-14%. The factors contributing to the declining rates include: (1) further increases in capital in the market; (2) competition from a strong catastrophe bond market; and (3) moderate levels of cat losses in recent years. A separate report summarizes the activity in the catastrophe bond market during 2013.
This post written by Rollie Goss.
We have posted many times on the slowly developing changes in the area of credit for reinsurance and reinsurance collateral requirements. The recent report on insurance regulation from the Federal Insurance Office contained a recommendation in this area: “To afford nationally uniform treatment of reinsurers, FIO recommends that Treasury and the United States Trade Representative (USTR) pursue a covered agreement for reinsurance collateral requirements based on the National Association of Insurance Commissioners Credit for Reinsurance Model Law and Regulation.” FIO Report, page 37. Such an agreement likely would be an international agreement which, pursuant to the Dodd-Frank Act, would preempt and supersede state laws in this area.
At the same time, the NAIC has been monitoring the adoption by the states of the Credit for Reinsurance Model, and has pursued a process of certifying foreign jurisdictions as “qualified jurisdictions” for purposes of of permitting reinsurers licensed or domiciled in such jurisdictions to seek certification by states for reduced collateral requirements under the Credit for Reinsurance Model. The NAIC has announced the addition of four international supervisory authorities as Conditional Qualified Jurisdictions: the Bermuda Monetary Authority; the German Federal Financial Supervisory Authority; the Swiss Financial Market Supervisory Authority; and the United Kingdom Prudential Regulation Authority of the Bank of England. According to the NAIC article, this approval permits states to begin certifying reinsurers licensed or domiciled in those jurisdictions for collateral reduction purposes, with the full review of these four jurisdictions by the NAIC continuing during 2014. Individual states have the authority to approve jurisdictions not on the NAIC’s list of qualified jurisdictions. Since the NAIC/Model approach depends upon action by individual states, this route is unlikely to achieve the uniformity advocated by the FIO Report, at least in the short term.
This post written by Rollie Goss.
In 2005, former New York Attorney General Eliot Spitzer commenced a civil enforcement action against AIG, AIG’s former CEO, and AIG’s former CFO Howard Smith for allegedly engaging in fraudulent reinsurance transactions. In response, Smith submitted a Freedom of Information Law (“FOIL”) request seeking the disclosure of the AG’s communications with the press regarding the complaint. A New York Supreme Court held that the AG’s office has a responsibility and obligation to gain access to Spitzer’s personal email account to determine if it contains documents that should be disclosed in accordance with the FOIL request. The court, however, also allowed the AG’s office to appeal the issue. On appeal, the Appellate Division determined that Spitzer is a necessary party and remanded the case without deciding the issue so the Supreme Court can order Spitzer’s joinder. Smith v. New York State Office of the Attorney General, No. 515758 (N.Y. App. Div. Oct. 17, 2013).
This post written by Abigail Kortz.
See our disclaimer.
In an effort to implement reduced collateral requirements for ceding insurers, New Hampshire and Delaware have both enacted legislation that conforms with the NAIC’s amendments to its Credit for Reinsurance Model Law and Regulations. New Hampshire’s amended Reinsurance law, introduced as House Bill 231 on January 1, 2013, took effect on September 13, 2013. N.H. Rev. Stat. Ann. § 405:45-:52-a. New Hampshire is also considering amending its related regulation, N.H. Code Admin. R. Ins. 600, as originally proposed on July 18, 2013. Delaware’s amended Credit for Reinsurance regulation was first published for comments on May 1, 2013, and became effective on August 15, 2013. 18 Del. Admin. Code § 1003. Though not a Model state, Hawaii also recently adopted amendments, effective July 1, 2013, relating to conditions under which risk retention captive insurers may qualify for reinsurance credits on risks ceded to a reinsurer. Haw. Rev. Stat. § 431:19-111.
This post written by Kyle Whitehead.
See our disclaimer.
There are two interesting regulatory developments of interest to the insurance-linked securities space. First, the Securities and Exchange Commission is considering a proposed rule which would change the regulation of money market mutual funds under the Investment Company Act of 1940. One alternative being considered is to require funds to sell and redeem shares based on the current market-based value of the securities, i.e., that they transact at a “floating” net asset value per share. If funds in cat bond reinsurance trusts or more traditional collateralized reinsurance trusts were invested in such floating value instruments, the value of the collateral might decline and adversesly affect the amount of reinsurance or the amount of collateral available to a ceding insurer. However, the proposed rule exempts from the floating NAV requirement funds which are 80% or more invested in cash, government securities or fully collateralized repurchase agreements. The investment guidelines of most new cat bonds and collateral agreements would come within this exception, and the conservative investment of trust assets should avoid the potential adverse impact of the floating NAV requirement in the current proposed rule.
Second, the European Union’s Joint Forum, which is composed of the EU’s banking, insurance and securities regulators, has issued a report titled Longevity risk transfer markets: market structure, growth drivers and impediments, and potential risks (August 2013). This report describes the three types of transactions that are being used to transfer longevity risk: buy-out transactions; buy-in transactions; and longevity swaps or insurance. Given that the total global amount of annuity and pension related longevity risk exposure ranges from $15-25 trillion, understanding these risks, the alternative risk transfer methods of dealing with them and the views of regulators concerning such issues is important for anyone interested in the potential development of the equivalent of a cat bond market for longevity risks.
This post written by Rollie Goss.
See our disclaimer.
We have previously posted on the NAIC’s initiatives with respect to captives and the NY Department’s captives report. The NAIC’s Executive Committee and Plenary, in a joint teleconference, have adopted the Reinsurance Task Force’s proposed White Paper on the activities of captives. Activity regarding captives at the NAIC continues on several fronts, including:
Financial Analysis Working Group of the Financial Condition (E) Committee
Additional responsibilities relating to captives have been assigned to this working group:
It was noted that some state insurance departments already conduct reviews of some individual transactions involving captives.
Principle-Based Reserving Implementation (EX) Task Force of the Executive (EX) Committee
This task force will consider the Report’s recommendations in the context of the proposed Principal-Based Reserving system and make further recommendations, if any, to the Executive (EX) Committee. This activity may be conducted through a new Captive Working Group, which will report to this task force. The Captive Working Group will consider the following issues:
Blanks Working Group of the Accounting Practices and Procedures Task Force of the Financial Condition (E) Committee
This working group is evaluating an exposure draft of a definition of “captive affiliate,” which, if adopted, would result in enhanced disclosure in Schedule F of transactions with captives. (see recent agenda item).
Reinsurance Task Force of the Financial Condition (E) Committee
The Reinsurance Task Force may implement other recommendations from the White Paper.
This post written by Rollie Goss.
See our disclaimer.
New York’s Department of Financial Services issued an amendment to Insurance Regulation 147 (11 NYCRR 98) which changes reserve requirements on universal life with secondary guarantee policies. The amendment is designed to conform Regulation 147 with NAIC’s revisions to actuarial guidelines calling for reserves for all universal life with secondary guarantee business written between July 1, 2005 and December 31, 2012 to be calculated under a “principles-based” approach. For business issued after January 1, 2013, reserves are to be calculated using a formulaic-based approach. Insurers must also file quarterly financial statements based on minimum reserve standards in effect on the date of filing. New York Department of Financial Services Fourth Amendment to 11 NYCRR 98 (May 17, 2013).
This post written by John Pitblado.
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A lawsuit has been filed in the United States District Court for the Southern District of New York concerning the administration of the $100 million Mariah Re Ltd. cat bond, which covers severe weather event risks ceded to Mariah Re by American Family Mutual Insurance Company, with an attachment point of $825 million. The Complaint focuses on the modeling and reporting of a particular storm by ISO Services, Inc,. (d/b/a/ Property Claim Service (“PCS”)) and AIR Worldwide Corp. (“AIR”). Payments under the cat bond are based upon estimated loss modeling by PCS, rather than being indemnity based. The Complaint alleges that PCS impropery issued an amended bulletin reporting on the losses resulting from the storm after it had issued its “final report” concerning the storm, and that PCS improperly backdated the replacement report so that it apepared to have been issued prior to the date of its “final report.” It is alleged that as a result of the replacement report, AIR’s calculation of the losses purportedly chargeable to Mariah Re resulting from the storm increased from $62.2 million to approximately $180.1 million. Apparently, American Family withdrew the entire $100 million limit of the cat bond from the cat bond’s reinsurance trust, approximately $37.8 million more than what it is alleged should have been withdrawn.
Disputes over the administration cat bonds are rare. One source has suggested that this is the first lawsuit concerning the administration of cat bonds. This lawsuit raises the interesting question of whether the use of non-indemnity payment triggers in cat bonds exposes ceding insurers to potential litigation risks which an indemnity payment trigger would avoid.
This post written by Rollie Goss.
See our disclaimer.
