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"Kempler, Cecelia"
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Insolvent reinsurers pose even greater risk
The US Supreme Court altered Ohio's statutory scheme for distributing the assets of an insolvent insurer by ranking claims of ceding insurers behind the claims of the US government. In view of the decision, ceding insurers would be wise to determine the extent of a reinsurer's indebtedness to the federal government before doing business with the reinsurers, and to more vigilantly monitor the solvency of their reinsurers. By lessening the ceding insurers' prospects for recovery from insolvent reinsurers, the decision is making it more imperative for those ceding insurers to protect themselves before insolvencies occur.
Journal Article
Insolvent reinsurers pose even greater risk
As a result of a 1993 decision by the US Supreme Court in the case of United States Department of the Treasury vs. Ohio Insurance Superintendent George Fabe, a ceding insurer's ability to recover amounts owed by an insolvent reinsurer has been diminished. In its decision in the Fabe case, the court used the so-called federal priority statute, which confers priority to the US over general creditors with respect to the schedule of payments from persons or parties that are insolvent and in bankruptcy. The decision, which has applications for both property/casualty and life/health insurers, adversely impacts ceding insurers because courts in Illinois, Indiana, North Carolina, and Tennessee have unanimously held that ceding insurers are general creditors, not policyholders, of insolvent reinsurers under state distribution schemes essentially identical to Ohio's.
Magazine Article
Will Hancock spawn new regulations, products?
In the US Supreme Court decision involving the case John Hancock Mutual Life Insurance Co. vs. Harris Trust and Savings Bank, as Trustee of the Sperry Master Retirement Trust, the Court rewrote the rules for insurance products acquired to fund private defined pension plan obligations subject to the Employee Retirement Income Security Act 1974-US (ERISA). The court's decision could be read to declare that general account assets which are not annuitized or do not otherwise fully guarantee plan benefits must be deemed to be plan assets. However, the Hancock decision could be construed to have stopped short of drawing such a definitive line between guaranteed and nonguaranteed benefits, thus leaving unclear when a guarantee is sufficient to fit within the ERISA insurance exemption. Pension business is too important to the insurance industry for insurance regulators not to react by supporting insurers in adapting to a possible broad application of the rule developed by the Hancock decision. The insurance industry must adapt to a possible broad application of Hancock.
Magazine Article
Keeping RBC data confidential
Risk-based capital (RBC) reports establish standards based on a life insurer's asset risk, insurance risk, interest-rate risk, and business risk. Under the model, life insurers reporting RBC levels of less than 70% of their RBC requirement will be placed under regulatory control. Insurers are concerned that RBC reports could be disclosed and misused by the public, despite measures the National Association of Insurance Commissioners (NAIC) has taken to protect confidentiality. In instances when RBC underlying nonpublic data shows that a company has inadequate RBC, such disclosure could damage an insurer and even cause a run on the company. In a drafting note to the RBC model, the NAIC recommends that state legislatures specifically exempt RBC reports from state freedom-of-information laws. However, state freedom-of-information laws seemingly encompass any policyholders, stockholders, the media, competitors, state agencies, legislators and government personnel. Insurance regulators may have little control over dissemination of such data. Public and political pressure as well as judicial decisions govern the secrecy of RBC data.
Journal Article