What’s new: In brief (February 13, 2005)

The Cayman Islands Monetary Authority says it licensed 76 new captives in 2004 to bring the total number of active captives domiciled in the Caymans to 694. The nearly 700 captives write about US$6 billion in annual premium, and report assets of US$22 billion. Of the new captives, 40 were healthcare-related, while other markets include workers’ compensation, general liability, property, product liability and auto liability. The majority of Cayman captives come from North America.

If the Sarbanes-Oxley requirements are extended to non-public insurance companies, those insurers will face costs of at least US$1 billion per year, says the Property Casualty Insurers Association of America (PCI). PCI vice president Steve Broadie made this statement in a panel discussion at the National Association of Insurance Commissioners (NAIC) last week. "Insurance companies are already held to a higher standard under state regulation, which is far more extensive than regulation of most public companies," Broadie says. "Imposing [SOX Section] 404 standards on non-public insurers implies that current state regulation may not adequately ensure the accuracy of financial statements, which we don’t agree with." Section 404 requires management to assess and report on the adequacy of internal accounting controls, and for independent actuaries to attest to the adequacy of management’s statement on internal controls.

XL and Winterthur Swiss are at odds over reserve issues stemming from XL’s purchase of Winterthur International almost four years ago. In its yearend 2004 financial statements, XL notes that each insurer has submitted its own independent valuation of prior-year claims for the purchased business, with XL saying it is owed US$1.45 billion in respect of these claims, compared to Winterthur’s estimate of US$541 million. Those submissions will be reviewed through a "baseball type" independent valuation process, wherein the company’s estimate which comes closest to the independent valuation will be the final seasoned amount. Both companies have been placed on a negative watch by rating agency Fitch, which notes that either faces a US$900 million net pretax charge if the evaluation does not go in their favor, which could result in a downgrade.