Insurance Claims And Issues

"Unauthorized Insurer" Purchasing Reinsurance in Florida Can Sue As "Insured".

    Florida, like many jurisdictions, has a Statute which prohibits "suits by unauthorized insurers".  In Florida, the Statute in question is Florida Statute Section 626.903, accessible here.  Section 626.903 provides in essence that "no unauthorized insurer shall institute, file, or maintain, or cause to be instituted, filed, or maintained, any suit, action, or proceeding in this state to enforce any right, claim, or demand arising out of any insurance transaction in this state."

    The purpose and wording of this Statute are regulatory.  It is part of a scheme regulating unauthorized insurers in Florida, and encouraging them to become authorized.  The Florida Statute does not reach status in the sense that no unauthorized insurer can ever seek redress in the Florida Courts about anything simply because it, the Plaintiff, is an unauthorized insurer.

    Thus, it was recently held by Florida's Fourth District Court of Appeal that Section 626.903 did not bar an unauthorized insurer, Advantage General Insurance Co., from suing a Reinsurance Company for Coverage in Florida State Court after the Reinsurer denied all Coverage:  "However, when Advantage purchased reinsurance from KILN & QBE in Florida, Advantage was the insured.  In making this purchase of reinsurance, Advantage was not 'transacting insurance' within the meaning of the Florida Insurance Code ....  Since Advantage filed suit as an insured, not an insurer, we conclude that section 626.903 does not bar Advantage's claim against KILN & QBE."  Download Advantage General Insurance Co. v. KILN.QBE International (Fla. 4th DCA Case No. 4D08-1944, Opinion Filed April 29, 2009).  See attached slipsheet opinion at 2.  [Emphasis by the Fourth District Court of Appeal.]

Florida Statutes, Cases, and Administrative Agency Rules and Regulations, along with other authorities, are freely accessible through the portals at www.dennisjwall.com.

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Reinsurance Coverage Extends to North Korea.

    Reinsurance Coverage has a broad reach.  Recently, Korea National Insurance Company, owned by the government of North Korea, settled an Insurance Coverage case filed in London, in which reportedly 95% of a claimed loss will be paid by its Reinsurers.

    The real news here is that KNIC, which many would truly consider a "captive" Insurance Company, i.e., the government of North Korea, obtained and paid for Reinsurance Policies.

    The Reinsurance Policies obtained by North Korea were with Allianz, Generali, and several Lloyd's of London syndicates, among others.  However, one of KNIC's Reinsurers, Aviabel, reportedly did not join in the settlement.  See Sundeep Tucker, "N Korea State Insurance Group Wins Case" (Financial Times.com, Dec. 10, 2008).  [Note:  Despite the headline of this linked FT.com report, the matter was settled; the London case did not therefore result in a judgment of any kind as a result of that settlement, apparently.]

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Reinsurance Premiums Predicted to Rise With Exposure.

    Reinsurance Premiums are predicted to rise in double digits in the New Year.  Andrea Felsted, "Embattled Insurers Ready to Benefit From Lessons Learned" (Financial Times.com, Saturday, January 3, 2009).

    This prediction has peculiar force concerning Reinsurance Premiums that are widely expected to increase for Insurance Companies exposed to paying Claims following Hurricanes, including onshore Property and offshore Property which in turn includes oil and gas infrastructure.  See, e.g., id. among other recent news reports.

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Hurricanes Not Buffeting Florida, Benefits Both Florida and Mr. Buffett.

    After Hurricanes Charley, Ivan, Jeanne, Rita and Wilma et al. pummeled Florida properties in recent years, the Florida Legislature established a fund for the avowed purpose of enabling Florida Property Owners to purchase Property Insurance Coverage.  The fund was so large that there were warnings that with one Catastrophe, the Taxpayers of Florida would potentially be on the hook for more money to fund CatClaims than anyone had yet dreamed of.

    To its credit, the State of Florida purchased a reported "option agreement" from Mr. Warren Buffett's Berkshire Hathaway Inc.  In exchange for $224 Million, Berkshire Hathaway agreed in the event of a Catastrophe "to buy $4 billion of bonds to finance storm recovery".  That agreement expired as of December 31, 2008.  Although it has been characterized as another shrewd business move for Mr. Buffett, see, e.g., Hugh Son, "Buffett Wins $224 Million Storm Bet With Florida (Update 2)" (Bloomberg.com, Monday, December 29, 2008); Tom Petruno, "Buffett's Berkshire Scores on Florida Hurricane Season Bet" (Money & Co. Blog, Los Angeles Times Online, Monday, December 29, 2008), with all due respect to Mr. Buffett it was also a shrewed business move under the circumstances for Florida Taxpayers as well.

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Reinsurance Rates, Writedowns, and Catastrophe Claims -- or Not.

     The Reinsurance industry is in good shape reports Moody's Investors Service.  Reinsurance rates drop when there are fewer Hurricanes or other Catastrophe Claims, in basic terms, and increase when there is more demand for Reinsurance such as in years when there is more and greater damage from Hurricanes.  Reinsurance rates are in their second year of decline, at least until Hurricane Gustav arrived.  Moody's takes the declining two-year rate period into account in its report, noting that Reinsurance Companies have also taken the two-year rate decline into account.  They have the financial strength to earn Moody's expectation of a stable outlook despite lower rates for Reinsurance, and despite a recession in the United States, "and the credit market disruption."  Oliver Suess, "Strong Financials Let Reinsurers Weather Turmoil, Moody's Says" (Bloomberg.com, Friday, September 5, 2008).

    The world's two largest Reinsurance Companies are Munich Re and Swiss Re, measured by net Reinsurance premiums written.  Oliver Suess, "Munich Re and Swiss Re Top S&P's List of Largest Reinsurers" (Bloomberg.com, Saturday, September 6, 2008).  They both have a different story to tell.  Both reportedly want to raise rates to "reverse" the two-year "20 percent decline in rates".  Oliver Suess and Jon Menon, "Munich Re May See Higher Rates, Profits in Wake of 2008 Storms" (Bloomberg.com, Friday, September 5, 2008).  It is reported that Munich Re's share price is down 12% compared to 2 years ago, and that Swiss Re's share price is down 29% over the same two-year period.  Id.

    Further, a report recently issued by Standard & Poor's seems to support the Reinsurers and contradict Moody's.  S&P's report contains the opinion that Reinsurers may experience "material reduction" in Underwriting Profits if they are not allowed to raise their rates, now.  Oliver Suess, "Munich Re and Swiss Re Top S&P's List of Largest Reinsurers" (Bloomberg.com, Saturday, September 6, 2008).  The culprit seems to be increased claims costs.  Id.  More specifically, claims costs increased with a rising "frequency and severity of claims" apparently since 2006 and 2007.  Oliver Suess, "Reinsurers Need Higher Rates to Offset More Claims, S&P Says" (Bloomberg.com, Saturday, September 6, 2008).  Reportedly, Hurricane Gustav, for example, caused "insured damages of about $3 billion to $7 billion ... according to estimated [sic] by modeling firm Eqecat Inc."  Id.

    (Parenthetically, "insured damages of about $3 billion to $7 billion" is a very broad range indeed.  Until September, 2008, claims incurred and reported were listed in those terms, i.e., claims incurred and reported.  Claims are not shown nor reported "according to estimates by modeling firms".)

    Perhaps reflecting a truer reality, Swiss Re recently said itself, that its 2Q 2008 Profit declined 53% because of "writedowns related to credit-default swaps."  Oliver Suess and Jon Menon, "Munich Re May See Higher Rates, Profits in Wake of 2008 Storms" (Bloomberg.com, Friday, September 5, 2008).

    In fact, in the same linked newspaper report it is also reported that ceding Insurance Companies (inaccurately sometimes referred to in the report as "primary" insurers) themselves accounted for $77 Billion of such writedowns from 2007 through 1Q 2008.  Id.  American International Group ("AIG") alone accounted for about half of that amount, it is reported.  Id.

    In a related or unrelated development, AIG and General Reinsurance Corporation executives were recently convicted of criminal charges of fraud and conspiracy.  Federal prosecutors put the price tag to AIG shareholders "as much as $1.4 billion".  David Voreacos and Jane Mills, "Investors Lost $1.4 Billion in General Re, AIG Fraud, U.S. Says (Update 2)" (Bloomberg.com, Friday, September 5, 2008).

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Thanks for the Insurance and Your Service, Citizen Douglas!

     Thursday, July 31, 2008 is the last day that Mr. Bruce Douglas will serve as the Chair of Citizens Property Insurance Corporation.  Reportedly, Citizens is the largest Homeowner's Insurance Company in the United States that operates as an arm of State Government, and in this case, the State is Florida.

     Citizens also reportedly has 1,200,000 or 1.2 Million Policyholders.  In the 6 years that Mr. Bruce Douglas has been the Citzens Chair, "its exposure to storm damage" has more than doubled, "to $425-billion, but reserves have been rising, thanks to no recent storms."  Mr. Douglas is virtually everyone's dictionary definition of a fine human being.  His public service has been performed with honor.  Consistent peformance of his duties with honor, and a good sense of humor rarely found in those in modern public life, are both on display in this interview by Tom Zucco, "He Leaves Citizens More Stable" (St. Petersburg Times Online, Friday, July 25, 2008).

     Thank you, Bruce Douglas.

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Florida O.I.R. Lifted Suspension of New Allstate Policies...

... The Same Day Florida's First District Court of Appeal Denied Rehearing of its Opinion Upholding O.I.R.'s Order Suspending New Allstate Policies.

     Press reports published on Saturday, May 17, 2008 made it appear that the Florida Office of Insurance Regulation (O.I.R.) lifted its suspension on new Allstate Insurance Policies on Florida on the day before, or Friday, May 16, 2008.  As you will recall, the O.I.R. issued its Suspension Order in the first place because Allstate failed to comply with O.I.R. subpoenas for various groups of documents including unauthorized Catastrophe Computer Models purchased by Allstate in connection with its Premium Rate Increase requests.

     According to the O.I.R., it announced a stay of its Suspension Order on Wednesday, May 14, 2008, immediately after the Florida appellate court denied rehearing of its Opinion upholding the O.I.R. Order.  The reason given by the O.I.R. was its receipt of a sworn affidavit from Allstate "certifying that it has complied with Florida law by freely providing all documents requested" by the O.I.R.  See Florida Office of Insurance Regulation Press Release, "Florida Insurance Commissioner McCarty Stays Allstate Suspension, Continuing Compliance Required," Wed., May 14, 2008.

     Dennis Wall, Chair of the Insurance Law Committee, will speak at the Orange County Bar Association Center in Orlando, Florida about Preparing for Hurricane Insurance, on Wednesday, May 21, 2008 from Noon to 1:00 P.M.  The Orange County Bar Association Center is located at 880 North Orange Avenue in Orlando, Florida.

    You are cordially invited to attend this free public event.  Hope to see you there. 

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Preparing for Hurricane Insurance.

    Dennis Wall, Chair of the Insurance Law Committee, will speak at the Orange County Bar Association Center in Orlando, Florida about Preparing for Hurricane Insurance, on Wednesday, May 21, 2008 from Noon to 1:00 P.M.  The Orange County Bar Association Center is located at 880 North Orange Avenue in Orlando, Florida.

    You are cordially invited to attend this free public event.  Here  is a link to the "EVENTS" published about this presentation by the Orlando Sentinel on Monday, May 19, 2008 on page C3, col. 1, in "The Law & You" Section.

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Property Insurance and the Florida Legislature: Reforms or Risks?

    Property Insurance is a focus of the 2008 Florida Legislature.  This is not always to the good, according to an editorial on the subject in an influential Florida newspaper, "Insurance Risks Still Looming" (St. Petersburg Times Online, Thursday, March 27, 2008).

    The editorial highlights many areas of interest addressed by various bills passed or pending in the Florida Senate.  Some of these areas of interest are shared in varying degrees by the Florida House of Representatives and by other State officials such as Florida's current Chief Financial Officer.  Some were put in place by the 2007 Special Session of the Florida Legislature; some are new.  Here are the more significant areas of interest addressed in the editorial:

• Expanding Citizens Property Insurance Corporation.  Citizens is a public corporation owned by the Taxpayers of Florida.  A Senate bill, according to the editorial, would allow Citizens to issue Insurance Policies "insuring homes worth $1-million or more."
• Extending the current rate freeze through 2009.
• Providing incentives through "a $250-million state incentive program" for private Insurance Companies to remove and take over the risk on  Insurance Policies on which Citizens is currently on the risk.
• Reduce Florida's exposure to Reinsurance risk.
• "[R]esponsibly reduce exposure with both the CAT fund and Citizens, which can each assess policyholders when they run deficits."

Time, Hurricanes, the Florida Legislature, and Florida State officials will determine the outcome of these and other proposals.  That is, if there is enough Time.  And whether there is another Year of Hurricanes in Florida.  Much remains to be seen.

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Storm Clouds in Florida: Legislature Divided Over Rollback, Writedowns.

   The current credit crunch and crisis, problems with issuing and insuring the payment of Bonds, and at least one of the questioned credit rating corporations used in the Insurance industry, have recently made appearances together in the Florida Capitol.

   The current credit crunch has appeared together with the specter of a failure in the market for Florida Bonds.  "In light of the troubled housing and credit markets, state leaders have expressed doubt that they'd be able to sell $27 billion in bonds needed to pay storm claims if a Katrina-sized hurricane hit a major population center in Florida."  Julie Patel, "State Legislators Say Property Insurance Law Has Deep Flaws" (South Florida Sun-Sentinel.com, 10:24 PM EDT, Monday, March 24, 2008). 

   In addition, embattled credit rating company Fitch Ratings just issued a timely report.  In its report, Fitch reportedly takes the position that Homeowner's Insurance Coverage would "'effectively collapse'" if there is a Hurricane in Florida in 2008.  The Fitch report comes just as the Florida Legislature is debating whether to writedown and rollback, or extend, the emergency laws it passed in Special Session in January, 2007.

   A majority in the Florida Senate reportedly is in favor of extending and expanding the 2007 Special Laws on Hurricane Insurance.   For example, a majority of the Florida Senate reportedly supports extending a moratorium on Premium Rate Increases by Citizen's Property Insurance Company.  The moratorium or "freeze" on Rate hikes is due to expire on January 1, 2009.    Citizen's is owned and operated on behalf of Florida Taxpayers as a State agency offering circumscribed Homeowner's and other Property Insurance Coverages.  That its offerings became suddenly more popular in 2006 and 2007 was taken then as a sign of a desperate Homeowner's and Property Insurance Market in Florida.

   On the other hand, a present majority in the Florida House of Representatives reportedly opposes extending the moratorium on Citizen's Property Insurance Premium increases.  Further, a majority in the Florida House is reported to support "scaling back the catastrophe fund" that the Florida Legislature rushed into place in its 2007 Special Session.

   More to come in the struggle among and between Premium Rate Increases and the availability of credit, the performance and issuance of so-called Municipal Bonds such as the Florida Bonds in question in the Florida Capitol, and the very existence and availability of Homeowner's Insurance Coverage in Florida.

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