One of my pet peeves about the New York Liquidation Bureau over the years has been its inability (or refusal) to acknowledge in practice the difference between liquidation and rehabilitation under Article 74 of the Insurance Law. Unfortunately the Bureau’s Mission Statement as posted on its web site perpetuates the problem (www.nylb.org/mission.htm).
The Mission Statement avers that the Liquidation Bureau acts for the Superintendent of Insurance to “. . . return rehabilitated companies to the marketplace or distribute the proceeds of the company in a timely manner to creditors.” Under §7403 the rehabilitator’s statutory function is to “conduct the business” of the company in rehabilitation, and to take steps “toward the removal of the causes and conditions” that made the rehabilitation necessary. There is no statutory authority for the rehabilitator to “distribute the proceeds of the company in a timely manner to creditors.” That can only be done in liquidation, which is a separate proceeding with different statutory rules.
If the New York Liquidation Bureau wants the insurance community to believe it has a new attitude about its role in rehabilitations, it might want to consider revising its Mission Statement to reflect the law.
For a more extensive review of the receivership process, particularly in New York, see my article, "Who Protects us from the Reciever?" at http://www.pbnylaw.com/articles/whoprotectsusfromthereciever-11-04.pdf.
Tuesday, November 27, 2007
Friday, November 16, 2007
Principles to Live By
On November 5th the New York Superintendent of Insurance, Eric Dinallo, issued a press release and a draft regulation that Mr. Dinallo states “would make the New York Insurance Department the first in the nation to establish principles-based regulation.” The press release states that the aim of principles-based regulation is to “reduce unnecessary regulatory and administrative burdens . . .”, and sets forth the principles for both the regulated and the regulators (the proposed regulation just sets forth the principles for the regulated -- I guess they figure a regulator cannot issue a regulation regulating itself). To see copies of the press release and proposed regulation go to http://ins.state.ny.us and look under the heading “New Item”.
In essence, the proposal sets for rules to live by, both for the regulated companies and for the regulators. The rules themselves are mostly common sense rules that, it could be argued, are what is supposed to be the case in any event – such as Principle #1 for the companies: “A licensee shall lawfully conduct its business with integrity, due skill, and diligence.” Commentators have already taken shots at the principles, basically arguing that they could even lead to more regulation or litigation as regulators start to “define” the elements of the principles more narrowly than under current rules. One only need look at the body of law and disagreement over that simple document of principles called the U.S. Constitution to understand the possibilities.
On the other hand, any attempt to reduce or simplify the regulatory process should be welcomed by the industry, and it should diligently pursue this initiative with the Superintendent to try and make it work. For the most part those of us that have dealt with regulators for decades are understandably skeptical, particularly when it comes to regulatory initiatives. However, I believe the Superintendent should be given a chance to put some meaningful substance to the bones of the principles.
There is one principle that should be added to the Regulators list. The Regulators should be required to acknowledge that licensees are for-profit entities and that their owners are entitles to a fair return on their investment. Mr. Dinallo has frequently stated in public forums that he is anxious to bring new investment into the industry. A starting point for investors would be to know that if they do so successfully, they can and will be rewarded. If the regulators cannot make this principle commitment, why should investors make a principal commitment?
In essence, the proposal sets for rules to live by, both for the regulated companies and for the regulators. The rules themselves are mostly common sense rules that, it could be argued, are what is supposed to be the case in any event – such as Principle #1 for the companies: “A licensee shall lawfully conduct its business with integrity, due skill, and diligence.” Commentators have already taken shots at the principles, basically arguing that they could even lead to more regulation or litigation as regulators start to “define” the elements of the principles more narrowly than under current rules. One only need look at the body of law and disagreement over that simple document of principles called the U.S. Constitution to understand the possibilities.
On the other hand, any attempt to reduce or simplify the regulatory process should be welcomed by the industry, and it should diligently pursue this initiative with the Superintendent to try and make it work. For the most part those of us that have dealt with regulators for decades are understandably skeptical, particularly when it comes to regulatory initiatives. However, I believe the Superintendent should be given a chance to put some meaningful substance to the bones of the principles.
There is one principle that should be added to the Regulators list. The Regulators should be required to acknowledge that licensees are for-profit entities and that their owners are entitles to a fair return on their investment. Mr. Dinallo has frequently stated in public forums that he is anxious to bring new investment into the industry. A starting point for investors would be to know that if they do so successfully, they can and will be rewarded. If the regulators cannot make this principle commitment, why should investors make a principal commitment?
Tuesday, November 6, 2007
A Lesson in Insurance/Reinsurance Economics
Vincent J. Dowling, Jr., (Dowling & Partners, http://www.dowling.com/) an outspoken analyst of the insurance industry, was the keynote speaker at the annual meeting of ARIAS-US* last week. Speaking before an opening session crowd of over 650 arbitrators, company (cedant and reinsurer) representatives, lawyers and industry consultants, Mr. Dowling made a number of thought provoking statements that started the proceedings off to a rollicking start. One of his more interesting observations for the arbitrators present was that reinsurance recoverables as a percentage of policyholder surplus in the US is down from 50% in 2001 to 30% today (perhaps helping to explain the anecdotal perception among the arbitrators present that the number of arbitrations has ebbed the last couple of years). While he regaled the audience with criticisms of the arbitration process, his most provocative comments were aimed at the investment community, concluding that the property/casualty insurance and reinsurance business is and will continue to be a “lousy” business “for the invest-able future.”
For instance, Mr. Dowling stated that:
* Underwriters’ reported financial statements are always wrong.
* Rating Agencies are the de-facto regulators of the industry.
* Investing in the insurance/reinsurance business is like a roach motel – easy to get in but impossible to get out.
* Bermuda is the “Better Mousetrap” for investors because of the regulatory climate and the ability to actually make an adequate return on capital.
* If you want to invest in the insurance business, control the customer – become an intermediary not an underwriter.
* New capital has managed to come in to the industry on short tail business, but has not yet figured out how to come in with enough capital for long tail business.
* We are in a soft market cycle and can expect another round of company insolvencies in the foreseeable future.
All of these statements were supported by lots of charts and schedules, all of which I am sure VJ would be delighted to share with anyone who asks.
* ARIAS-US (http://www.arias-us.org/) is an organization that “promotes improvement of the insurance and reinsurance arbitration process for the international and domestic markets.” I am an ARIAS certified arbitrator and umpire.
For instance, Mr. Dowling stated that:
* Underwriters’ reported financial statements are always wrong.
* Rating Agencies are the de-facto regulators of the industry.
* Investing in the insurance/reinsurance business is like a roach motel – easy to get in but impossible to get out.
* Bermuda is the “Better Mousetrap” for investors because of the regulatory climate and the ability to actually make an adequate return on capital.
* If you want to invest in the insurance business, control the customer – become an intermediary not an underwriter.
* New capital has managed to come in to the industry on short tail business, but has not yet figured out how to come in with enough capital for long tail business.
* We are in a soft market cycle and can expect another round of company insolvencies in the foreseeable future.
All of these statements were supported by lots of charts and schedules, all of which I am sure VJ would be delighted to share with anyone who asks.
* ARIAS-US (http://www.arias-us.org/) is an organization that “promotes improvement of the insurance and reinsurance arbitration process for the international and domestic markets.” I am an ARIAS certified arbitrator and umpire.
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