Welcome to this first update from Clyde & Co's Corporate Insurance Team in 2013. This newsletter summarises new developments documented over the preceding month with links to the full documents where these are available.
- Clyde & Co's Corporate Insurance team media highlights 2012
What's in store for 2013? As we begin the New Year, Clyde & Co looks at developments on the global horizon. The firm asked its lawyers from Europe, the Middle East, Asia-Pacific and the Americas, as well as from some of its correspondent firms, about the key issues for insurers and reinsurers this year
Regulatory
Solvency II –the perils of procrastination
Every week brings new announcements of delays in the Solvency II process. What should insurers and reinsurers make of these? With the latest 'guesstimates' set at 2017 for its introduction, it is perhaps time to look at what the consequences for the industry might be of the slipping timetable, and ask whether the benefits of more preparation time might be outweighed by the costs of ongoing uncertainty and confusion.
Europe
LMA publishes Eurozone wordings guidance
The Lloyd's Market Association (LMA) has published guidance on how insurance and reinsurance contracts could perform in the event of a euro zone exit. The guidance includes example clauses, as well as a checklist of points for Lloyd's managing agents relating to governing law, jurisdiction, location of the parties, and contract denomination.
This guidance has been prepared jointly by the LMA and Clyde & Co LLP. The guidance is there for underwriters to consider during the renewal season, said Kees van der Klugt, Director of Legal & Compliance at the LMA. "The aim should be to include appropriate clauses pre-inception where, for example, contracts are denominated in euro, or a party or insured property is located in the euro zone," he said. The guidance is potentially relevant to all euro-denominated business, said Nigel Brook, Partner of Clyde & Co, who drafted the guidance. Many arrangements, with inter-connecting reinsurance and service contracts, are potentially exposed if a euro zone exit were to happen, he said.
It explores some of the specific considerations about how contracts may react in the event of one or more Eurozone countries switching from the Euro to a new currency. By its very nature, the note is high level and does not address every eventuality. It is also important to note that there is a degree of legal uncertainty as to how particular clauses will be interpreted in the event of such a switch and how local courts will deal with contracts in light of the legislation which will trigger the re-denomination. However, this guidance aims to assist parties in achieving as much contractual certainty as is possible.
Read more or Download the guidance
Moving business around Europe
Re/insurers are taking a long hard look at their business in the light of new capital requirements, and portfolio transfers are becoming increasingly popular as carriers seek to rationalise their business in advance of implementation of Solvency II. The use of the UK Part VII transfer procedure has increased exponentially over the past three years. The number of cross-border transfers has also increased significantly, as (re)insurers seek to re-organise their groups by eliminating subsidiaries, operating on passported basis, rather than having an authorised carrier in each European Economic Area (EEA) state.
European Insurance in Figures
The figures in the report reveal that a total of €930bn in claims was paid out by the European insurance sector in 2011 which in comparison to 2010 is an increase of 7.5%. This 70 page report published in January by the European insurance and reinsurance federation 'Insurance Europe' is based on yearly data collected from its member associations and the figures represent more than 90% of the market for most countries.
Sanctions
For all our latest articles on sanctions please see our sanctions web page.
European Union extends sanctions against Iran
With the coming into force on 23 December 2012 of Council Regulation (EU) No 1263/2012 (1263/2012), the European Union has further augmented its sanctions regime in place against Iran. The implementation of 1263/2012 has only served to complicate what was already a remarkably intricate assortment of prohibitions and exemptions. It will be necessary to continue to assess on a case by case basis whether an activity with a sanctions touchpoint will be permitted or prohibited, as this is a fact which will turn on the merits of each case's individual circumstances. In order to prevent inadvertent breaches of sanctions, adequate due diligence should be carried out on all potential transactions, and contracts should contain a sanctions clause. However, neither of these should be relied on alone for protection. Over the coming weeks, Clyde & Co will be providing further in depth analysis of the major themes of Regulation 1263/2012, including dedicated updates focused on the Marine, Financial and Trade restrictions it imposes.
Sanctions microsite
We have developed a dedicated sanctions microsite where you will find all our sanctions articles and events and useful information relating to Iran, Libya, North Korea, Syria, Cuba and Burma/Myanmar.
Corporate
Gender balance
Recent developments in the ongoing debate on achieving gender balance in the boardroom have seen the European Commission retreat from plans to introduce mandatory quotas in favour of a proposal for a directive relating to non-executive directors of listed companies (other than SMEs). In broad terms, this will require that the under-represented gender comprises at least 40% of a company's non-executive directors by January 2020. Whilst no similar requirement is proposed for executive directors, the plan is for companies to undertake individual, voluntary, commitments regarding balanced representation of both genders by the same date.
Liability of non-executive directors
Meanwhile, the Institute of Chartered Secretaries and Administrators has published new guidance on the liability of non-executive directors. This suggests how non-executive directors might approach their role in a way which would allow them to demonstrate to a regulator, or in court, that they had taken appropriate steps to exercise care, skill and diligence in the execution of that role and their responsibilities. The note covers matters to be considered before joining a board and, following appointment, steps that newly-appointed non-executive directors should take. The guidance cross-refers to relevant requirements of the UK Corporate Governance Code and to best practice points from the Financial Reporting Council's Guidance on Board Effectiveness, amongst other publications.
Current state of corporate reporting
The end of 2012 saw the Association of British Insurers update its Report on Board Effectiveness, which looks at the current state of corporate reporting and examines progress in what the ABI considers to be the core areas of board diversity, succession planning and evaluation. This year's report, which highlights best practice and sets out recommendations, also includes a new section on the role of chairmen in ensuring effective boards.
Global news in brief from the industry
- Seventeen countries are judged "significantly underinsured" according to research published by Lloyd's. China insured just 1.4% of losses arising from natural catastrophes between 2004 and 2011, with $208bn in uninsured losses.
- CHINA - A draft version of Notice on Issues regarding Reinsurance Transactions between Foreign-invested Insurance Companies and their Affiliated Companies was released by the China Insurance Regulatory Commission ("CIRC") on 14 December 2012 for public comment. The Draft Notice provides that it will also apply to the retrocession business.
- D&O ruling calms fears. Written by John Edmond and Simon Black for Insurance Day - reproduced with the kind permission of Informa. The decision of the Auckland High Court in Steigrad v BFSL 2007 Ltd (Bridgecorp) in September 2012 caused shockwaves throughout the Australian and New Zealand directors' and officers' (D&O) markets. That decision has recently been overturned.
Cases and updates
We produce regular weekly updates which are aimed at keeping you up to speed and informed of the latest developments in case law and regulatory changes relevant to your practice.
Insurance and Reinsurance end of year review 2012
- Apportionment. Whether payments by the insured to its customers were mitigation costs/ apportionment/ interpretation on an aggregation clause
- Conditions precedent. Fraudulent claim and joint/composite policy/breach of condition precedent
- Damages. Whether claimant insurer could fully recover the cost of repairs from the defendants' insurers
- Interpretation. Supreme Court decides mesothelioma claims under EL policies are triggered by exposure/ considers causation issues. Meaning of "exposed to acts of piracy" in a marine insurance policy. Whether loss fell within the terms of a motor insurance policy and the meaning of "arising out of" in the context of a policy exclusion. Whether theft by employee fell within scope of an insurance policy/construction of insurance policies
- Jurisdiction. Governing law and scope of arbitration agreement/whether a binding obligation to mediate first. Whether English court had jurisdiction to hear insureds' claim
- Non-disclosure/misrepresentation. Basis of the contract clauses in insurance proposal forms and the test for belief
- Notification. Whether claim fell within scope of a public liability policy and notification condition
- Law Commission proposals and litigation costs reform
Financial services regulatory
- This weekly update from Clyde & Co's Financial Services Regulatory Team summarises new developments as reported by the FSA, the UKLA, the Upper Tribunal, the Financial Ombudsman Service and the London Stock Exchange over the past week, with links to the full documents where these are available
For all our newsletters, legal updates, articles and events please see here
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
