Draft: 12/18/03
Reinsurance (G) Task Force
Anaheim, California
December 6, 2003
The Reinsurance (G) Task Force met in Anaheim, CA, on Dec. 6, 2003. A quorum was present and John Oxendine (GA) chaired the meeting. The following committee members were present: Alessandro Iuppa, Vice Chair (ME); Walter Bell (AL) represented by Richard Ford; John Garamendi (CA) represented by Woody Girion; Larry Mirel (DC); Donna Lee Williams (DE) represented by Al Franz; Tom Gallagher (FL) represented by Lee Roddenberry; J.; Janie A. Miller (KY) represented by Julie McPeak; Julie Bowler (MA); Gregory V. Serio (NY) represented by Joe DeMauro; Ann Womer Benjamin (OH) represented by Peg Ising; Diane Koken (PA) represented by Steve Johnson; Ernst Csiszar (SC); Paula Flowers (TN); José Montemayor (TX); and Alfred W. Gross (VA).
1. Report on NCOIL Meeting
Commissioner Oxendine informed the Task Force about the recent deliberations of the National Conference of Insurance Legislators (NCOIL) concerning the proposed approved list of reinsurers (Attachment One). Bob Macken (NCOIL) informed the Task Force that NCOIL’s executive committee requested that the NAIC keep them aware of deliberations of the Task Force and would request information regarding the proposal from the Reinsurance Task Force in a timely manner.
2. Report of Enforcement of Foreign Judgments Subgroup
Commissioner Oxendine stated that the Enforcement of Foreign Judgments Subgroup held a conference call on Nov. 19, 2003. Upon a motion from Ms. McPeak and seconded by Superintendent Iuppa, the minutes of the conference call were adopted (Attachment Six). Commissioner Oxendine informed the Task Force members about his recent visit to The Hague Convention on Private International Law (Attachment Seven). There were many divergent opinions expressed by various jurisdictions at the meeting. After the meeting, Commissioner Oxendine considered that a pan-European solution does not appear to be possible at this time. Therefore, the Task Force might want to review enforceability on a country-by-country basis. Oliver Parker (Legal Advisor for UK Government Department of Constitutional Affairs) will provide comments to the NAIC concerning enforceability of judgments in the UK. The members of the subgroup should receive this comment letter by Jan. 15, 2004. Commissioner Oxendine indicated that the subgroup would also research additional information concerning the New York Convention on Arbitration. Commissioner Oxendine enumerated a series of issues that should be addressed concerning enforceability of judgments. The UK appears to be the most closely tied to the U.S. in many respects and the UK government seems to be very willing to cooperate with the NAIC regarding this issue.
Commissioner Mirel appreciated Commissioner Oxendine’s comments and wanted to clarify that a body of law already exists regarding commercial transactions between the U.S. and various other jurisdictions. Commissioner Oxendine agreed with Commissioner Mirel’s statement and indicated that the impact of enforceability should determine criteria so that we fully understand the status of the law within the various jurisdictions. Commissioner Mirel indicated that some jurisdictions do not include mandatory contract provisions, and it may be possible to require certain contract provisions within the reinsurance contract. Some of the jurisdictions indicated problems with this issue due to the respective bargaining power of the parties as well as public policy exceptions according to Commissioner Oxendine.
Commissioner Gross suggested that the subgroup concentrate on historical examples of problems with enforceability of judgments. One suggested place to start may be with state insurance receivers. Commissioner Oxendine has asked for specific examples, but has not received any at this time. Another potential issue would be what is the worst-case scenario rather than specific examples of what has happened. Commissioner Oxendine indicated that this issue would be much less likely with an ongoing concern versus a company in liquidation. Commissioner Gross indicated that the subgroup might want to consult with the NAIC Insolvency Task Force. Commissioner Oxendine indicated that some jurisdictions indicated that they may have an issue with punitive damages or arbitral awards depending on whether or not the damages arose out of first-party claims against Mercedes-Benz, for example, or damages against an insurer that were then trying to be collected against a non-U.S. reinsurer, and whether or not the damages were specified in the contractual terms. Rob Graham (General Re) indicated that his understanding of the German example would be that German courts do not enforce punitive damages. Commissioner Mirel indicated that there may be certain issues with the Reinsurance Task Force dealing directly with governments, but the Task Force should determine what criteria are important for companies to meet in order to be listed on the approved list of reinsurers.
Mr. Girion indicated that the issue could be more basic than establishing the criteria. Mr. Girion stated that the Task Force should review whether the reasons are still valid on why we set up the current reinsurance trusts. Cindy Lamar (RAA) indicated that the real issue relates to what the state insurance receivers can collect versus specific examples only in the insurance industry. Mr. DeMauro asked what the Task Force received in terms of information from the Insolvency Task Force. Commissioner Oxendine stated that the Insolvency Task Force reviewed the concept and would prefer to have assets backing those U.S. unauthorized liabilities. Ms. McPeak also sits on the Insolvency Task Force and indicated that the group does have a variety of projects at this time. The most significant is the establishment of a Global Receiver Insurance Database (GRID). Ms. McPeak indicated that the existence of the collateral held in the U.S. would generally avoid the problem of enforceability since cash or another acceptable asset is held in the trust funds in New York. Commissioner Gross indicated that there must be examples where losses have developed beyond the amount of collateral held in trust. Bryan Fuller (NAIC) will collaborate with the Insolvency Task Force to determine if state insurance receivers have experienced problems with enforceability, or where losses have developed beyond the amounts held by collateral. Ms. McPeak indicated that the GRID process includes a survey on the accreditation of supervisors. It may make sense to add a question to the survey concerning enforceability of judgments. Mr. Girion also indicated that the subgroup might want to look at how judgments are enforced between other jurisdictions that do not have collateral requirements.
Bill Marcoux (LeBoeuf, Lamb, Greene and MacRae) stated that the subgroup should limit its focus to the enforceability of judgments relating to insurance or reinsurance and not to other commercial activity. Up to this point, no individual cases have been identified. In the proposal, Mr. Marcoux indicated that Section 6B includes a requirement for listing that the Commissioner must verify that the insurer is from a domicile that gives good faith and credit for judgments rendered by a U.S. court.
3. Report of the Jurisdictional Accounting Standards Subgroup
The Jurisdictional Accounting Standards Subgroup held a conference call on Nov. 25, 2003. Upon a motion from Commissioner Montemayor and seconded by Mr. Girion, the Task Force adopted the minutes of the conference call (Attachment Five). Betty Patterson (TX) indicated that the subgroup wants to analyze work already performed by other groups on accounting differences between jurisdictions using U.S. GAAP as a starting point. Commissioner Montemayor concurred that several groups at the NAIC are further along on performing differences between accounting standards. Mr. Girion stated that the Task Force does not want to convert financial statements precisely, but we need to understand various jurisdictions’ accounting standards and look at whether those financial statements have comparability and reliability can be achieved at a high level. Commissioner Gross also wanted to ensure that the subgroup would report limitations on comparability regarding issues such as technical provisions. The subgroup will look at any comparisons that can be readily determined between various accounting standards and analyze whether or not U.S. insurance regulators can rely on the financial statements that are produced in other jurisdictions.
4. Presentation on Actuarial Opinions, Loss Reserving and Auditing Requirements in non-US Jurisdictions
Vincent Laurenzano (Stroock & Stroock & Lavan) presented the third in a series of reports that compares U.S. reinsurance regulatory requirements on actuarial opinions, loss reserving and auditing requirements with those in other jurisdictions (Attachment Two). The first report concerned material transactions, particularly between affiliates, that require specific disclosure. The report also discussed Risk-Based Capital requirements in the U.S. and demonstrated that minimum solvency requirements are much higher in the U.S. compared to the EU and UK. The second report concerned credit for reinsurance issues and, in particular, risk transfer requirements in various jurisdictions that are either nonexistent or much more liberal than the same requirements in the U.S.
Commissioner Mirel inquired that there are obviously differences between jurisdictions, but those should not necessarily require the maintenance of 100% collateral. Mr. Laurenzano stated that the three reports focus on issues that U.S. insurance regulators consider important in determining the financial viability of insurance companies. If these requirements are not required for unauthorized insurers, then perhaps they should not be required for U.S. authorized insurers as well. Commissioner Mirel stated that simply because a specific jurisdiction looks at different criteria does not mean that their system of regulation is not valid. Mr. Laurenzano stated that without risk transfer requirements or actuarial opinions concerning asbestos and environmental liabilities, significant problems could be hidden from U.S. regulators. Mr. Girion asked if the requirement to provide actuarial opinions have been sufficient to help avoid insolvencies. Mr. Laurenzano indicated that insolvencies will always occur, but certain latent liabilities that need to be reported are missing from non-U.S. regulatory jurisdictions. Joe Fritsch (NY) asked about whether or not certain jurisdictions allow for discounting when establishing loss reserves. Mr. Laurenzano stated that discounting of loss reserves is allowed in some non-U.S. jurisdictions and presents another problem when analyzing the financial statements of such an insurer.
Mr. Girion asked about the viability of the working trust concept that was being discussed in the past, but has not been discussed recently. Mr. Graham indicated that Stephen Schwab (Piper, Marbury, Rudnick & Wolfe) would be working with the interested parties to revisit the working trust concept. Commissioner Oxendine indicated that the proposal was originally brought to the attention of the Task Force from non-U.S. reinsurers, but that there were certain operational difficulties. Mr. Graham indicated that the proponents of that proposal may have thought that the approved listing of reinsurers would move more rapidly, so that they may be more amenable to the concept of a working trust currently. Hildegard Stuke (Hannover Re) stated that the working trust concept would not be an acceptable option for her company. Ms. Stuke indicated that actuarial analysis in Germany is typically performed in-house and stated that discounting is not allowed in Germany.
5. Review Jurisdictional Report on Supervisory Requirements for Reinsurance
Mr. Fuller stated that the French supervisory authorities wanted to clarify several issues related to regulation of reinsurance in France (Attachment Three).
6. Review Proposed Model Regulation for List of Approved Reinsurers
Commissioner Oxendine indicated that the Task Force has not received much comment from the interested parties concerning the proposed model for a listing of approved reinsurers.
Jeff Peterson (American Names Association) requested that the Task Force review Lloyd’s reinsurance trusts as well as the new regulatory structure in place at the Financial Services Authority (FSA) in the UK (Attachment Four). Commissioner Oxendine encouraged the ANA to ask for information clarifying this situation from the FSA and confer back with the Task Force. James Walmsley (Lloyd’s) indicated that the statements, in his opinion, disclosed a misconception of the Lloyd’s market and the reorganization of the Lloyd’s market, which will not affect the trust funds or the ability of Lloyd’s to stand behind liabilities on policies written before or after Jan. 1, 2005.
Having no further business, the Reinsurance (G) Task Force adjourned.
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