TITLE 27
Insurance
CHAPTER 27-1.1
Credit for Reinsurance Act
SECTION 27-1.1-1
§ 27-1.1-1 Credit allowed a domestic
ceding insurer.
(a) Credit for reinsurance shall be allowed a domestic ceding insurer as either
an asset or a reduction from liability on account of reinsurance ceded only
when the reinsurer meets the requirements of subsections (b), (c), (d), (e),
(f) or (g) of this section. Credit shall be allowed under subsections (b), (c)
or (d) of this section only as respects cessions of those kinds or classes of
business which the assuming insurer is licensed or otherwise permitted to write
or assume in its state of domicile or, in the case of a U.S. branch of an alien
assuming insurer, in the state through which it is entered and licensed to
transact insurance or reinsurance. Credit shall be allowed under subsections
(d) or (e) of this section only if the applicable requirements of subsection
(h) have been satisfied.
(b) Credit shall be allowed when the reinsurance is ceded to
an assuming insurer that is licensed to transact insurance or reinsurance in
this state.
(c) Credit shall be allowed when the reinsurance is ceded to
an assuming insurer that is accredited by the commissioner as a reinsurer in
this state. In order to be eligible for an accreditation a reinsurer must:
(1) File with the commissioner evidence of its submission to
this state's jurisdiction;
(2) Submit to this state's authority to examine its books and
records;
(3) Be licensed to transact insurance or reinsurance in at
least one state, or in the case of a United States branch of an alien assuming
insurer be entered through and licensed to transact insurance or reinsurance in
at least one state;
(4) Annually file with the commissioner a copy of its annual
statement filed with the insurance department of its state of domicile and a
copy of its most recent audited financial statement, and:
(5) Demonstrate to the satisfaction of the commissioner that
it has adequate financial capacity to meet its reinsurance obligations and is
otherwise qualified to assume reinsurance from domestic insurers. An assuming
insurer is deemed to meet this requirement as of the time of its application if
it maintains a surplus as regards policyholders in an amount not less than
twenty million dollars ($20,000,000), and its accreditation has not been denied
by the commissioner within ninety (90) days after submission of its application.
(d)(1) Credit shall be allowed when the reinsurance is ceded
to an assuming insurer that is domiciled in, or in the case of a United States
branch of an alien assuming insurer is entered through, a state that employs
standards regarding credit for reinsurance substantially similar to those
applicable under this statute, and the assuming insurer or U.S. branch of an
alien assuming insurer:
(i) Maintains a surplus regarding policyholders in an amount
not less than twenty million dollars ($20,000,000); and
(ii) Submits to the authority of this state to examine its
books and records;
(2) Provided, that the requirement of subsection (d)(1)(i)
does not apply to reinsurance ceded and assumed pursuant to pooling
arrangements among insurers in the same holding company system.
(e)(1) Credit shall be allowed when the reinsurance is ceded
to an assuming insurer that maintains a trust fund in a qualified United States
financial institution, as defined in section 27-1.1-3(b), for the payment of
the valid claims of its United States ceding insurers their assigns and
successors in interest. To enable the commissioner to determine the sufficiency
of the trust fund, the assuming insurer shall report annually to the
commissioner information substantially the same as that required to be reported
on the National Association of Insurance Commissioners annual statement form by
licensed insurers. The assuming insurer shall submit to examination of its
books and records by the commissioner, and bear the expense of examination.
(2)(i) Credit for reinsurance shall not be granted under this
subsection unless the form of the trust and any amendments to the trust have
been approved by:
(A) The commissioner of the state where the trust is
domiciled; or
(B) The commissioner of another state who, pursuant to the
terms of the trust instrument, has accepted principal regulatory oversight of
the trust.
(ii) The form of the trust and any trust amendments shall
also be filed with the commissioner of every state in which the ceding insurer
beneficiaries of the trust are domiciled. The trust instrument shall provide
that contested claims shall be valid and enforceable upon the final order of
any court of competent jurisdiction in the United States. The trust shall vest
legal title to its assets in its trustees for the benefit of the assuming
insurer's U.S. ceding insurers, their assigns and successors in interest. The
trust and the assuming insurer shall be subject to examination as determined by
the commissioner.
(iii) The trust shall remain in effect for as long as the
assuming insurer has outstanding obligations due under the reinsurance
agreements subject to the trust. No later than February 28 of each year the
trustee of the trust shall report to the commissioner in writing the balance of
the trust and listing the trust's investments at the preceding year end and
shall certify the date of termination of the trust, if so planned, or certify
that the trust will not expire prior to the following December 31.
(3) The following requirements apply to the following
categories of assuming insurer:
(i) The trust fund for a single assuming insurer shall
consist of funds in trust in an amount not less than the assuming insurer's
liabilities attributable to reinsurance ceded by U.S. ceding insurers, and, in
addition, the assuming insurer shall maintain a trusteed surplus of not less
than twenty million dollars ($20,000,000), except as provided in paragraph
(3)(ii) below.
(ii) At any time after the assuming insurer has permanently
discontinued underwriting new business secured by the trust for at least three
(3) full years, the commissioner with principal regulatory oversight of the
trust may authorize a reduction in the required trusteed surplus, but only
after a finding, based on an assessment of the risk, that the new required
surplus level is adequate for the protection of U.S. ceding insurers,
policyholders and claimants in light of reasonably foreseeable adverse loss
development. The risk assessment may involve an actuarial review, including an
independent analysis of reserves and cash flows, and shall consider all
material risk factors, including when applicable the lines of business
involved, the stability of the incurred loss estimates and the effect of the
surplus requirements on the assuming insurer's liquidity or solvency. The
minimum required trusteed surplus may not be reduced to an amount less than
thirty percent (30%) of the assuming insurer's liabilities attributable to
reinsurance ceded by U.S. ceding insurers covered by the trust.
(iii)(A) In the case of a group including incorporated and
individual unincorporated underwriters:
(B) For reinsurance ceded under reinsurance agreements with
an inception, amendment or renewal date on or after January 1, 1993, the trust
shall consist of a trusteed account in an amount not less than the respective
underwriters' several liabilities attributable to business ceded by U.S.
domiciled ceding insurers to any underwriter of the group;
(C) For reinsurance ceded under reinsurance agreements with
an inception date on or before December 31, 1992, and not amended or renewed
after that date, not-withstanding the other provisions of this chapter, the
trust shall consist of a trusteed account in an amount not less than the
respective underwriters' several insurance and reinsurance liabilities
attributable to business written in the United States;
(D) In addition to these trusts, the group shall maintain in
trust a trusteed surplus of which one hundred million dollars ($100,000,000)
shall be held jointly for the benefit of the U.S. domiciled ceding insurers of
any member of the group for all years of account; and
(E) The incorporated members of the group shall not be
engaged in any business other than underwriting as a member of the group and
shall be subject to the same level of regulation and solvency control by the
group's domiciliary regulator as are the unincorporated members.
(I) Within ninety (90) days after its financial statements
are due to be filed with the group's domiciliary regulator, the group shall
provide to the commissioner an annual certification by the group's domiciliary
regulator of the solvency of each underwriter member; or if a certification is
unavailable, financial statements, prepared by independent public accountants,
of each underwriter member of the group.
(iv) In the case of a group of incorporated underwriters
under common administration the group shall
(A) Have continuously transacted an insurance business
outside the United States for at least three (3) years immediately prior to
making application for accreditation,
(B) Maintain an aggregate policyholders surplus of ten
billion dollars ($10,000,000,000).
(C) Maintain a trust fund in an amount not less than the
group's several liabilities attributable to business ceded by United States
domiciled ceding insurers to any member of the group pursuant to reinsurance
contracts issued in the name of the group.
(D) In addition, maintain a joint trusted surplus of which
one hundred million dollars ($100,000,000) shall be held jointly for the
benefit of U.S. domiciled ceding insurers of any member of the group as
additional security for these liabilities, and
(E) Within ninety (90) days after its financial statements
are due to be filed with the group's domiciliary regulator, make available to
the commissioner an annual certification of each underwriter member's solvency
by the member's domiciliary regulator, and financial statements of each
underwriter member of the group prepared by its independent public accountant;
(f) Credit shall be allowed when the reinsurance is ceded to
an assuming insurer that has been certified by the commissioner as a reinsurer
in this state and secures its obligations in accordance with the requirements
of this subsection.
(1) In order to be eligible for certification, the assuming
insurer shall meet the following requirements:
(i) The assuming insurer must be domiciled and licensed to
transact insurance or reinsurance in a qualified jurisdiction, as determined by
the commissioner pursuant to paragraph (f)(iii) of this subsection;
(ii) The assuming insurer must maintain minimum capital and
surplus, or its equivalent, in an amount to be determined by the commissioner
pursuant to regulation;
(iii) The assuming insurer must maintain financial strength
ratings from two or more rating agencies deemed acceptable by the commissioner
pursuant to regulation;
(iv) The assuming insurer must agree to submit to the
jurisdiction of this state, appoint the commissioner as its agent for service
of process in this state, and agree to provide security for one hundred percent
(100%) of the assuming insurer's liabilities attributable to reinsurance ceded
by U.S. ceding insurers if it resists enforcement of a final U.S. judgment;
(v) The assuming insurer must agree to meet applicable
information filing requirements as determined by the commissioner, both with
respect to an initial application for certification and on an ongoing basis; and
(vi) The assuming insurer must satisfy any other requirements
for certification deemed relevant by the commissioner.
(2) An association including incorporated and individual
unincorporated underwriters may be a certified reinsurer. In order to be
eligible for certification, in addition to satisfying requirements of paragraph
(i) above:
(i) The association shall satisfy its minimum capital and
surplus requirements through the capital and surplus equivalents (net of
liabilities) of the association and its members, which shall include a joint
central fund that may be applied to any unsatisfied obligation of the
association or any of its members, in an amount determined by the commissioner
to provide adequate protection;
(ii) The incorporated members of the association shall not be
engaged in any business other than underwriting as a member of the association
and shall be subject to the same level of regulation and solvency control by
the association's domiciliary regulator as are the unincorporated members; and
(iii) Within ninety (90) days after its financial statements
are due to be filed with the association's domiciliary regulator, the
association shall provide to the commissioner an annual certification by the
association's domiciliary regulator of the solvency of each underwriter member;
or if a certification is unavailable, financial statements, prepared by
independent public accountants, of each underwriter member of the association.
(3) The commissioner shall create and publish a list of
qualified jurisdictions, under which an assuming insurer licensed and domiciled
in such jurisdiction is eligible to be considered for certification by the
commissioner as a certified reinsurer.
(i) In order to determine whether the domiciliary
jurisdiction of a non-U.S. assuming insurer is eligible to be recognized as a
qualified jurisdiction, the commissioner shall evaluate the appropriateness and
effectiveness of the reinsurance supervisory system of the jurisdiction, both
initially and on an ongoing basis, and consider the rights, benefits and the
extent of reciprocal recognition afforded by the non-U.S. jurisdiction to
reinsurers licensed and domiciled in the U.S. A qualified jurisdiction must
agree to share information and cooperate with the commissioner with respect to
all certified reinsurers domiciled within that jurisdiction. A jurisdiction may
not be recognized as a qualified jurisdiction if the commissioner has
determined that the jurisdiction does not adequately and promptly enforce final
U.S. judgments and arbitration awards. Additional factors may be considered in
the discretion of the commissioner.
(ii) A list of qualified jurisdictions shall be published
through the NAIC committee process. The commissioner shall consider this list
in determining qualified jurisdictions. If the commissioner approves a
jurisdiction as qualified that does not appear on the list of qualified
jurisdictions, the commissioner shall provide thoroughly documented
justification in accordance with criteria to be developed under regulations.
(iii) U.S. jurisdictions that meet the requirement for
accreditation under the NAIC financial standards and accreditation program
shall be recognized as qualified jurisdictions.
(iv) If a certified reinsurer's domiciliary jurisdiction
ceases to be a qualified jurisdiction, the commissioner has the discretion to
suspend the reinsurer's certification indefinitely, in lieu of revocation.
(4) The commissioner shall assign a rating to each certified
reinsurer, giving due consideration to the financial strength ratings that have
been assigned by rating agencies deemed acceptable to the commissioner pursuant
to regulation. The commissioner shall publish a list of all certified
reinsurers and their ratings.
(5) A certified reinsurer shall secure obligations assumed
from U.S. ceding insurers under this subsection at a level consistent with its
rating, as specified in regulations promulgated by the commissioner.
(i) In order for a domestic ceding insurer to qualify for
full financial statement credit for reinsurance ceded to a certified reinsurer,
the certified reinsurer shall maintain security in a form acceptable to the
commissioner and consistent with the provisions of section 3, or in a
multi-beneficiary trust in accordance with subsection (e) of this section,
except as otherwise provided in this subsection.
(ii) If a certified reinsurer maintains a trust to fully
secure its obligations subject to subsection (e) of this section, and chooses
to secure its obligations incurred as a certified reinsurer in the form of a
multi-beneficiary trust, the certified reinsurer shall maintain separate trust
accounts for its obligations incurred under reinsurance agreements issued or
renewed as a certified reinsurer with reduced security as permitted by this
subsection or comparable laws of other U.S. jurisdictions and for its
obligations subject to subsection (e) of this section. It shall be a condition
to the grant of certification under subsection (f) of this section that the
certified reinsurer shall have bound itself, by the language of the trust and
agreement with the commissioner with principal regulatory oversight of each
such trust account, to fund, upon termination of any such trust account, out of
the remaining surplus of such trust any deficiency of any other such trust
account.
(iii) The minimum trusteed surplus requirements provided in
subsection D are not applicable with respect to a multi-beneficiary trust
maintained by a certified reinsurer for the purpose of securing obligations
incurred under this subsection, except that such trust shall maintain a minimum
trusteed surplus of ten million dollars ($10,000,000).
(iv) With respect to obligations incurred by a certified
reinsurer under this subsection, if the security is insufficient, the
commissioner shall reduce the allowable credit by an amount proportionate to
the deficiency, and has the discretion to impose further reductions in
allowable credit upon finding that there is a material risk that the certified
reinsurer's obligations will not be paid in full when due.
(v) For purposes of this subsection, a certified reinsurer
whose certification has been terminated for any reason shall be treated as a
certified reinsurer required to secure one hundred percent (100%) of its
obligations.
(A) As used in this subsection, the term "terminated" refers
to revocation, suspension, voluntary surrender and inactive status.
(B) If the commissioner continues to assign a higher rating
as permitted by other provisions of this section, this requirement does not
apply to a certified reinsurer in inactive status or to a reinsurer whose
certification has been suspended.
(6) If an applicant for certification has been certified as a
reinsurer in an NAIC accredited jurisdiction, the commissioner has the
discretion to defer to that jurisdiction's certification, and has the
discretion to defer to the rating assigned by that jurisdiction, and such
assuming insurer shall be considered to be a certified reinsurer in this state.
(7) A certified reinsurer that ceases to assume new business
in this state may request to maintain its certification in inactive status in
order to continue to qualify for a reduction in security for its in-force
business. An inactive certified reinsurer shall continue to comply with all
applicable requirements of this subsection, and the commissioner shall assign a
rating that takes into account, if relevant, the reasons why the reinsurer is
not assuming new business.
(g) Credit shall be allowed when the reinsurance is ceded to
an assuming insurer not meeting the requirements of subsections (b), (c), (d)
(e) or (f) of this section, but only as to the insurance of risks located in
jurisdictions where the reinsurance is required by applicable law or regulation
of that jurisdiction.
(h) If the assuming insurer is not licensed, accredited or
certified to transact insurance or reinsurance in this state, the credit
permitted by subsections (d) and (e) of this section shall not be allowed
unless the assuming insurer agrees in the reinsurance agreements:
(1)(i) That in the event of the failure of the assuming
insurer to perform its obligations under the terms of the reinsurance
agreement, the assuming insurer, at the request of the ceding insurer, shall
submit to the jurisdiction of any court of competent jurisdiction in any state
of the United States, will comply with all requirements necessary to give the
court jurisdiction, and will abide by the final decision of the court or of any
appellate court in the event of an appeal; and
(ii) To designate the commissioner or a designated attorney
as its true and lawful attorney upon whom may be served any lawful process in
any action, suit or proceeding instituted by or on behalf of the ceding insurer.
(2) This subsection is not intended to conflict with or
override the obligation of the parties to a reinsurance agreement to arbitrate
their disputes, if this obligation is created in the agreement.
(i) If the assuming insurer does not meet the requirements of
subsections (b), (c) or (d), the credit permitted by subsection (e) or (f) of
this section shall not be allowed unless the assuming insurer agrees in the
trust agreements to the following conditions:
(1) Notwithstanding any other provisions in the trust
instrument, if the trust fund is inadequate because it contains an amount less
than the amount required by subsection (e)(iii) of this section, or if the
grantor of the trust has been declared insolvent or placed into receivership,
rehabilitation, liquidation or similar proceedings under the laws of its state
or country of domicile, the trustee shall comply with an order of the
commissioner with regulatory oversight over the trust or with an order of a
court of competent jurisdiction directing the trustee to transfer to the
commissioner with regulatory oversight all of the assets of the trust fund.
(2) The assets shall be distributed by and claims shall be
filed with and valued by the commissioner with regulatory oversight in
accordance with the laws of the state in which the trust is domiciled that are
applicable to the liquidation of domestic insurance companies.
(3) If the commissioner with regulatory oversight determines
that the assets of the trust fund or any part thereof are not necessary to
satisfy the claims of the U.S. ceding insurers of the grantor of the trust, the
assets or part thereof shall be returned by the commissioner with regulatory
oversight to the trustee for distribution in accordance with the trust
agreement.
(4) The grantor shall waive any right otherwise available to
it under U.S. law that is inconsistent with this provision.
(j) If an accredited or certified reinsurer ceases to meet
the requirements for accreditation or certification, the commissioner may
suspend or revoke the reinsurer's accreditation or certification.
(1) The commissioner must give the reinsurer notice and
opportunity for hearing. The suspension or revocation may not take effect until
after the commissioner's order on hearing, unless:
(i) The reinsurer waives its right to hearing;
(ii) The commissioner's order is based on regulatory action
by the reinsurer's domiciliary jurisdiction or the voluntary surrender or
termination of the reinsurer's eligibility to transact insurance or reinsurance
business in its domiciliary jurisdiction or in the primary certifying state of
the reinsurer under subparagraph (f)(vi) of this section; or
(iii) The commissioner finds that an emergency requires
immediate action and a court of competent jurisdiction has not stayed the
commissioner's action.
(A) While a reinsurer's accreditation or certification is
suspended, no reinsurance contract issued or renewed after the effective date
of the suspension qualifies for credit except to the extent that the
reinsurer's obligations under the contract are secured in accordance with
Section 3. If a reinsurer's accreditation or certification is revoked, no
credit for reinsurance may be granted after the effective date of the
revocation except to the extent that the reinsurer's obligations under the
contract are secured in accordance with subsection (f)(v) or section 3.
(k) Concentration Risk.
(1) A ceding insurer shall take steps to manage its
reinsurance recoverables proportionate to its own book of business. A domestic
ceding insurer shall notify the commissioner within thirty (30) days after
reinsurance recoverables from any single assuming insurer, or group of
affiliated assuming insurers, exceeds fifty percent (50%) of the domestic
ceding insurer's last reported surplus to policyholders, or after it is
determined that reinsurance recoverables from any single assuming insurer, or
group of affiliated assuming insurers, is likely to exceed this limit. The
notification shall demonstrate that the exposure is safely managed by the
domestic ceding insurer.
(2) A ceding insurer shall take steps to diversify its
reinsurance program. A domestic ceding insurer shall notify the commissioner
within thirty (30) days after ceding to any single assuming insurer, or group
of affiliated assuming insurers, more than twenty percent (20%) of the ceding
insurer's gross written premium in the prior calendar year, or after it has
determined that the reinsurance ceded to any single assuming insurer, or group
of affiliated assuming insurers, is likely to exceed this limit. The
notification shall demonstrate that the exposure is safely managed by the
domestic ceding insurer.
History of Section.
(P.L. 1991, ch. 257, § 1; P.L. 1991, ch. 348, § 1; P.L. 1993, ch.
180, § 26; P.L. 1994, ch. 404, § 15; P.L. 1999, ch. 22, § 2;
P.L. 2013, ch. 84, § 1; P.L. 2013, ch. 91, § 1.)
