HF 1614

as introduced - 90th Legislature (2017 - 2018) Posted on 02/23/2017 01:26pm

A bill for an act
relating to commerce; enacting the National Association of Insurance
Commissioners Credit for Reinsurance Model Act; amending Minnesota Statutes
2016, section 60A.092, subdivisions 6, 10, 11, by adding subdivisions.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

Minnesota Statutes 2016, section 60A.092, subdivision 6, is amended to read:

Subd. 6.

Single assuming insurer; trust fund requirements.

new text begin (a) new text end In the case of a single
assuming insurer, the trust shall consist of a trusteed account representing the assuming
insurer's liabilities attributable to business written in the United States and, in addition, a
trusteed surplus of not less than $20,000,000 or an additional amount as the commissioner
considers necessary new text begin , except as provided in paragraph (b) new text end . The assuming insurer shall maintain
its surplus as regards policyholders in an amount not less than $50,000,000 for long-tail
casualty reinsurers as provided under subdivision 3, paragraph (a), clause (5).

new text begin (b) At any time after the assuming insurer has permanently discontinued underwriting
new business secured by the trust for at least three 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 United States 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 30 percent of the assuming insurer's
liabilities attributable to reinsurance ceded by United States ceding insurers covered by the
trust.
new text end

Sec. 2.

Minnesota Statutes 2016, section 60A.092, subdivision 10, is amended to read:

Subd. 10.

deleted text begin Other jurisdictions deleted text end new text begin Certification of assuming insurers in qualifying
jurisdictions new text end .

deleted text begin The deleted text end new text begin (a) new text end Reinsurance is ceded to an assuming insurer deleted text begin not meeting the
requirements of subdivision 2, 3, 4, or 5, but only with respect to the insurance of risks
located in jurisdictions where the reinsurance is required by applicable law or regulation of
that jurisdiction deleted text end new text begin if the assuming insurer has been certified by the commissioner as a reinsurer
in this state and secures its obligations according to this subdivision new text end .

new text begin (b) To be eligible for certification, the assuming insurer shall meet the following
requirements:
new text end

new text begin (1) the assuming insurer must be domiciled and licensed to transact insurance or
reinsurance in a qualified jurisdiction, as determined by the commissioner under paragraph
(d);
new text end

new text begin (2) the assuming insurer must maintain minimum capital and surplus, or its equivalent,
in an amount to be determined by the commissioner by rule;
new text end

new text begin (3) the assuming insurer must maintain financial strength ratings from two or more rating
agencies deemed acceptable by the commissioner by rule;
new text end

new text begin (4) 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 100 percent of the assuming insurer's liabilities attributable to reinsurance ceded by
United States ceding insurers if it resists enforcement of a final United States judgment;
new text end

new text begin (5) 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
new text end

new text begin (6) the assuming insurer must satisfy any other requirements for certification deemed
relevant by the commissioner.
new text end

new text begin (c) 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 (b):
new text end

new text begin (1) 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 includes a joint central fund that may be applied to an unsatisfied obligation of the
association or any of its members, in an amount determined by the commissioner to provide
adequate protection;
new text end

new text begin (2) the incorporated members of the association shall not be engaged in a business other
than underwriting as a member of the association and are subject to the same level of
regulation and solvency control by the association's domiciliary regulator as are the
unincorporated members; and
new text end

new text begin (3) within 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.
new text end

new text begin (d) The commissioner shall create and publish a list of qualified jurisdictions under
which an assuming insurer licensed and domiciled in the jurisdiction is eligible to be
considered for certification by the commissioner as a certified reinsurer.
new text end

new text begin (e) To determine whether the domiciliary jurisdiction of a non-United States 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
extent of reciprocal recognition afforded by the non-United States jurisdiction to reinsurers
licensed and domiciled in the United States. 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 United States judgments and arbitration awards. Additional
factors may be considered at the discretion of the commissioner.
new text end

new text begin (f) A list of qualified jurisdictions must be published through the National Association
of Insurance Commissioners (NAIC) committee process. The commissioner shall consider
the 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 according to criteria to be developed by rule.
new text end

new text begin (g) United States jurisdictions that meet the requirement for accreditation under the
NAIC financial standards and accreditation program must be recognized as qualified
jurisdictions.
new text end

new text begin (h) If a certified reinsurer's domiciliary jurisdiction ceases to be a qualified jurisdiction,
the commissioner may suspend the reinsurer's certification indefinitely, in lieu of revocation.
new text end

new text begin (i) 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 by rule. The commissioner shall publish a list of
all certified reinsurers and their ratings.
new text end

new text begin (j) A certified reinsurer shall secure obligations assumed from United States ceding
insurers under this paragraph at a level consistent with its rating, as specified in rules adopted
by the commissioner.
new text end

new text begin (k) 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 section 60A.093, or in a
multibeneficiary trust according to subdivisions 5 to 9, except as otherwise provided in this
subdivision.
new text end

new text begin (l) If a certified reinsurer maintains a trust to fully secure its obligations subject to
subdivisions 5 to 9, and chooses to secure its obligations incurred as a certified reinsurer in
the form of a multibeneficiary 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 subdivision or comparable
laws of other United States jurisdictions and for its obligations subject to subdivisions 5 to
9. It is a condition to the grant of certification under this subdivision 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 trust account, to fund, upon
termination of a trust account, any deficiency of any other trust account out of the remaining
surplus of each trust.
new text end

new text begin (m) The minimum trusteed surplus requirements provided in subdivisions 5 to 9 are not
applicable with respect to a multibeneficiary trust maintained by a certified reinsurer for
the purpose of securing obligations incurred under this subdivision, except that the trust
shall maintain a minimum trusteed surplus of $10,000,000.
new text end

new text begin (n) With respect to obligations incurred by a certified reinsurer under this subdivision,
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.
new text end

new text begin (o) For purposes of this subdivision, a certified reinsurer whose certification has been
terminated for any reason must be treated as a certified reinsurer required to secure 100
percent of its obligations. As used in this subdivision, "terminated" means revocation,
suspension, voluntary surrender, and inactive status. If the commissioner continues to assign
a higher rating as permitted by other provisions of this section, the requirement in this
paragraph does not apply to a certified reinsurer in inactive status or to a reinsurer whose
certification has been suspended.
new text end

new text begin (p) 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. The assuming
insurer is considered to be a certified reinsurer in this state.
new text end

new text begin (q) 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 this subdivision, and the commissioner shall assign a rating that takes into account, if
relevant, the reasons why the reinsurer is not assuming new business.
new text end

Sec. 3.

Minnesota Statutes 2016, section 60A.092, is amended by adding a subdivision to
read:

new text begin Subd. 10a. new text end

new text begin Other jurisdictions. new text end

new text begin The reinsurance is ceded to an assuming insurer not
meeting the requirements of subdivision 2, 3, 4, 5, or 10, but only with respect to the
insurance of risks located in jurisdictions where the reinsurance is required by applicable
law or regulation of that jurisdiction.
new text end

Sec. 4.

Minnesota Statutes 2016, section 60A.092, subdivision 11, is amended to read:

Subd. 11.

Reinsurance agreement requirements.

(a) If the assuming insurer is not
licensed deleted text begin or deleted text end new text begin , new text end accredited new text begin , or certified new text end to transact insurance or reinsurance in this state, the
credit authorized under subdivisions 4 and 5 shall not be allowed unless the assuming insurer
agrees in the reinsurance agreements:

(1) 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 shall submit to the jurisdiction
of any court of competent jurisdiction in any state of the United States, comply with all
requirements necessary to give the court jurisdiction, and abide by the final decision of the
court or of any appellate court in the event of an appeal; and

(2) 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 company.

(b) Paragraph (a) is not intended to conflict with or override the obligation of the parties
to a reinsurance agreement to arbitrate their disputes, if an obligation to do so is created in
the agreement.

(c) Credit will not be granted, nor an asset or a reduction from liability allowed, to a
ceding insurer for reinsurance effected with assuming insurers meeting the requirements of
subdivision 2, 3, 4, 5, 6, deleted text begin or deleted text end 7, new text begin or 10, new text end unless the reinsurance contract provides that in the
event of the insolvency of the ceding insurer, the reinsurance will be payable under the
contract without diminution because of that insolvency.

Payments by the reinsurer must be made directly to the ceding insurer or its receiver,
except where the contract of insurance or reinsurance specifically provides for another payee
for the reinsurance in the event of insolvency of the ceding insurer according to the applicable
requirements of statutes, rules, or orders of the domiciliary state of the ceding insurer.

Sec. 5.

Minnesota Statutes 2016, section 60A.092, is amended by adding a subdivision to
read:

new text begin Subd. 12. new text end

new text begin Concentration risk. new text end

new text begin (a) 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 30 days after reinsurance recoverables from a
single assuming insurer, or group of affiliated assuming insurers, exceeds 50 percent of the
domestic ceding insurer's last reported surplus to policyholders, or after it is determined
that reinsurance recoverables from a single assuming insurer, or group of affiliated assuming
insurers, is likely to exceed this limit. The notification must demonstrate that the exposure
is safely managed by the domestic ceding insurer.
new text end

new text begin (b) A ceding insurer shall take steps to diversify its reinsurance program. A domestic
ceding insurer shall notify the commissioner within 30 days after ceding to any single
assuming insurer, or group of affiliated assuming insurers, more than 20 percent 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 must demonstrate that the exposure
is safely managed by the domestic ceding insurer.
new text end