Ten Insurance Issues to Watch in 2011

Insurance and Financial Services Update

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Members of Sidley Austin LLP’s Insurance and Financial Services Group regularly advise clients involved in the insurance industry on matters that include regulatory, compliance, and litigation developments affecting the industry. We have identified the following ten issues that are likely to develop throughout the year:

1. Monitor the full roll-out of Dodd-Frank. Developments will include the newly-created Federal Insurance Office’s (FIO) report on insurance regulation under Title V, and rulemaking with respect to swaps under Title VII. For more information, click here.
2. Understand the moving parts of reinsurance collateral reform involving non-U.S. reinsurers. The NAIC has weighed in, Dodd-Frank has made clear that only the cedent’s home state decides the credit for reinsurance issue, individual states have begun to amend credit for reinsurance provisions, and the FIO arguably has tools at its disposal to negotiate treaties and preempt state laws on the issue. For more information, click here and click here.
3. Keep abreast of the NAIC’s solvency modernization initiative. Expansion of insurance holding company requirements and scrutiny of “enterprise risk” are part of the new model law (Model Insurance Holding Company System Regulatory Act and Regulation). The NAIC is also considering changes to risk-based capital calculations. For more information, click here.
4. Prepare a Solvency II plan. The revised set of EU-wide capital requirements and risk management standards do not come into force until January 2013, but any company with European operations and European insurers with operations outside the EU will need to plan for the consequences. The changes may well create M&A opportunities for investors. For more information, click here.
5. Learn to navigate the new insurance commercial bribery pot holes. Incorporate Dodd-Frank, the U.S. Foreign Corrupt Practices Act, the UK Bribery Act, local Administrations for Industry and Commerce in China, and Southeast Asia initiatives into training and compliance programs. For more information, click here.
6. Ensure compliance with the EU’s data protection regime and with other international data privacy laws. The use of personal data on employees and policyholders is highly regulated in the EU with requirements to register with Data Protection Authorities, data security obligations and restrictions on transfer of personal data from the EU. There have also been a number of recent enforcement actions by EU authorities against insurance companies for failing to comply with data protection requirements which have involved significant fines and reputational damage. For more information, click here.
7. Evaluate investments and portfolio holdings, particularly with respect to asset- and mortgage-backed securities. Insurer litigation against major banks and investment banks has begun to make headlines, and the entire U.S. mortgage finance industry is subject to reform and reconstruction. For more information, click here.
8. Audit business practices to minimize the chances of being sued in the current spate of class actions in the U.S. Retained asset account, revenue sharing, and annuity practices have been targeted. For more information, click here and click here.
9. Urge the fullest possible disclosures by arbitrators, for the sake of finality of the eventual award. The Second Circuit should rule this year in the appeal in Scandinavian Reinsurance Co. v. St. Paul Fire & Marine Ins. Co., 732 F. Supp. 2d 293 (S.D.N.Y. 2010), which vacated an arbitration award on the basis of “evident partiality” after finding inadequate arbitrator disclosure.
10. Remain vigilant respecting potential new mass tort exposures. The potential for class action exposure in Europe has increased following the European Commission’s recently announced consultation on collective redress. Also, the U.S. Supreme Court granted certiorari in Connecticut v. American Elec. Power Co., 582 F.3d 309 (2d Cir. 2009), a public nuisance case where the plaintiffs sought abatement of carbon dioxide emissions by the defendant power plants. The Court’s decision should signal the extent to which “global warming” claims can be pursued in court in the U.S. Follow-on insurance coverage litigation is a distinct possibility. For more information, click here.

The Insurance and Financial Services Practice of Sidley Austin LLP

Sidley is one of only a few internationally recognized law firms to have a substantial, multidisciplinary practice devoted to the insurance and financial services industry. We have approximately 85 lawyers devoted exclusively to providing both transactional and dispute resolution services to the industry, throughout the world. Our Insurance and Financial Services Group has an intimate knowledge of and appreciation for the industry and its unique issues and challenges. Regular clients include many of the largest insurance and reinsurance companies, brokers, banks, investment banking firms and regulatory agencies, for which we provide regulatory, corporate, securities, mergers and acquisitions, securitization, derivatives, tax, reinsurance dispute, class action defense and other transactional and litigation services.

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This Sidley Update has been prepared by Sidley Austin LLP for informational purposes only and does not constitute legal advice. This information is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. Readers should not act upon this without seeking advice from professional advisers.

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