Who’s Who Legal has brought together Tim Goggin of Hogan Lovells, David Attisani of Choate Hall & Stewart and Rod Attride-Stirling of ASW Law to discuss key issues facing insurance and reinsurance lawyers and their clients today.
Tim Goggin: Solvency II has had a huge impact in the UK. It has generated restructurings as groups have sought to minimise the number of different subsidiaries that will have to be separately regulated, and to reduce the number of jurisdictions in which they are regulated. It has generated M&A, as groups have looked to divest capital intensive subsidiaries and portfolios of business. It has also generated a large number of regulatory queries, as firms grapple with the new rules, right up to the 1 January 2016 implementation date, and even further into this year.
Rod Attride-Stirling: Bermuda has been awarded full equivalence under Europe’s Solvency II regime, which came into effect on 1 January 2016. Since then, XL has announced that it will relocate its holding company from Ireland to Bermuda. Other companies are also moving to Bermuda to take advantage of its more open insurance market, while still being in a Solvency II environment with the open access to Europe that this brings.
As part of Bermuda’s ongoing commitment to responsible and efficient insurance regulation, substantial amendments have been made to the Bermuda Insurance Act 1978 and its related regulations (the Insurance Act) during 2015, most of these relating to Solvency II. However, these changes were made after broad consultation with the industry, so that the changes were welcomed by it. Solvency II has been embraced by the Bermudian market and given the amount of inquiries we have seen, it is clear that this will enhance and stimulate growth in the market.
Finally, it should be observed that captive insurance companies have been excluded from the Solvency II regulations, and so the captive industry is able to prosper without the additional regulatory burdens which might be considered inappropriate in the context of captive insurance.
Tim Goggin: As cyberattacks have grown in frequency and scale, we are aware that there has been an increase in cyberclaims, particularly over the past year. In addition, we have seen a marked increase in the number of businesses considering their need for insurance to cover the risks they face. Generally, the size of the business and its reliance on IT infrastructure will affect whether or not it needs specific cyber-insurance. Businesses are looking to their existing traditional policies, eg, commercial property, business interruption and professional indemnity to check if they already have sufficient cover and that there are no exclusions which prevent them for claiming following a cyberattack or data breach. Businesses that face significant threats to their own assets or significant liability exposure are considering additional specialist cover. Assisting clients with the assessment of their exposure and the terms of their cover is a growing part of our own practice.
Rod Attride-Stirling: Cyber-insurance in Bermuda, as elsewhere, is still at a relatively immature stage in the evolution of this type of insurance product. I understand that there are at least 10 companies in Bermuda writing this business in the commercial insurance market. One of the large brokers here reports growth of 100 per cent in the amount of premium being written in this sector. There is even a push to set up captive insurance companies that focus on cyber-risk. This market is expanding rapidly in Bermuda. Nevertheless not everyone is rushing to join the party. For example, Brian Duperreault, the head of Hamilton Insurance group, recently stated:
“At Hamilton, we’re taking a cautious position on cyber. We’re not writing it as a class until we’ve identified an approach that gives us comfort. We haven’t found one yet, mainly because there’s been a tendency to underestimate the interconnectedness of cyber risk.”
Tim Goggin: It is true to say that there has been less litigation activity in the London market due to a combination of very soft market conditions, consolidation within the insurance industry (especially the reinsurance sector), and the influence of the big brokers. This has been the trend for the last few years, especially in the reinsurance area, and we expect that it will continue for the foreseeable future. The result is that, while there are still a lot of claims problems and disputes, the overwhelming majority of issues are now resolved without litigation or arbitration being commenced.
Having said that, within the Hogan Lovells practice we have handled a number of high-value disputes over the last year where litigation has been commenced, although only a couple of those disputes proceeded to a trial. These tend to be cases where the amounts at issue are very substantial, or there is an issue that is of wider importance to at least one of the parties.
David Attisani: In my experience over the past several years, our market has been robust. My clients define my market to include both US-based disputes and disputes located in other countries around the world that implicate US law issues or US parties. I have worked in the UK, Turkey, Germany, France, Bermuda, Barbados and various other jurisdictions. Our fiscal year closed on 30 September 2015, and it was one of the most active annual periods – defined in terms of billable work and litigated/arbitrated matters – in my 23-year working history. Due to the diversity of the risks that animated my practice last year – which included an Obamacare matter, Superstorm Sandy, a dispute over specially accepted business, two variable annuities cases,and various APH aggregation and allocation disputes – I do not foresee a material change this year, subject to settlements and other fortuitous happenings.
Rod Attride-Stirling: Here at ASW in Bermuda we have certainly seen an uptick in the amount of insurance and reinsurance claims in the last 12 to 24 months. Given that experience, we see this trend continuing and we have recently increased our staffing with this in mind. Most of the policies to which these relate contain arbitration clauses. We have also seen an increase in claims disputes involving captive insurance companies. Whilst there are various theories as to why there has been a recent increase in the number of disputes, this perhaps has to do with the maturing Bermuda markets that are experiencing claims.
David Attisani: In my view, the principal challenges faced by reinsurance and insurance coverage practitioners include consolidation of various insurance entities (ie, actual and potential clients), conflicts of interest, and our collective ignorance concerning the “next big risk”. Candidates for a replacement to the “asbestos wars” have included, over the years, hydro-fracking, nanotechnology, radiation, food-related infirmities, etc. None, however, has produced the kind of activity all of us experienced at the height of the asbestos problem.
Rod Attride-Stirling: A challenge for the captive insurance industry is to ensure that everyone internationally is aware that captives have been “carved out” of the Solvency II regime in Bermuda. So captives continue to be regulated as before – ie, to a high standard that is commensurate to the risk levels of captives (which is very different to that of commercial insurers).
As far as the rest of the insurance industry goes, the world insurance markets are still soft, although arguably no longer softening. The state of the market has seen considerable adjustments leading to various prominent mergers and acquisitions (not all of them friendly). We are likely to see more M&A activity in the insurance market, which will bring challenges as well as rewards.