On October 16, 2008, the New York Department of Insurance ("NYDoI") distributed a circular letter that will have major impact on New York producers and purchasers of reinsurance. The purpose of Circular Letter No. 20 (2008) ("Circular Letter") is to set forth the NYDoI’s "position and expectations regarding contract certainty with respect to property/casualty insurance policies and all reinsurance contracts."
The Circular Letter defines "contract certainty" as "the complete and final agreement of all terms to an insurance policy or reinsurance contract by the date of inception, and the issuance and delivery of the policy or contract before, at, or promptly after inception."
After discussing the benefits of contract certainty and noting that the United Kingdom’s Financial Services Authority has made significant progress on this issue, the NYDoI concludes:
"This Department, too, expects the industry in New York to adhere to a set of reasoned principles and practices to enhance contract certainty. Accordingly, all terms of a policy should be complete and finalized, memorialized, executed, and provided to the insured before, at, or promptly after inception. For the purposes of this Circular Letter, 'promptly' should be generally interpreted to mean within thirty (30) days, and any extensions beyond that period should be carefully documented by insurers. Licensees should strive for contract certainty in at least ninety (90) percent of the policies that are not already subject to a more stringent requirement, such as policy forms subject to approval under the New York Insurance Law and regulations promulgated thereunder."
This raises a number of questions, including the following:
- Whether this applies to only New York domiciles or all New York licensees?
- Whether this applies if the risk being reinsured is not a New York risk?
- What if the risk is written by a non-U.S. subsidiary of a New York domiciled company?
- How is contract certainty determined?
The NYDoI will verify the industry's progress toward contract certainty through the examination process, inquiries to licensees, or information obtained from insureds or other parties affected by the transactions.