HF 1915

1st Engrossment - 92nd Legislature (2021 - 2022) Posted on 02/11/2022 11:12am

A bill for an act
relating to commerce; modifying allowance of reinsurance credit; amending
Minnesota Statutes 2020, sections 60A.092, subdivision 10a, by adding a
subdivision; 60A.0921, subdivision 2.

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

Section 1.

Minnesota Statutes 2020, section 60A.092, subdivision 10a, is amended to read:

Subd. 10a.

Other jurisdictions.

The reinsurance is ceded and credit allowed to an
assuming insurer not meeting the requirements of subdivision 2, 3, 4, 5, deleted text begin or deleted text end 10, new text begin or 10b, new text end 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.

Sec. 2.

Minnesota Statutes 2020, section 60A.092, is amended by adding a subdivision to
read:

new text begin Subd. 10b. new text end

new text begin Credit allowed; reciprocal jurisdiction. new text end

new text begin (a) Credit shall be allowed when
the reinsurance is ceded to an assuming insurer meeting each of the following conditions:
new text end

new text begin (1) the assuming insurer must have its head office in or be domiciled in, as applicable,
and be licensed in a reciprocal jurisdiction. A "reciprocal jurisdiction" means a jurisdiction
that is:
new text end

new text begin (i) a non-United States jurisdiction that is subject to an in-force covered agreement with
the United States, each within its legal authority, or, in the case of a covered agreement
between the United States and the European Union, is a member state of the European
Union. For purposes of this subdivision, a "covered agreement" means an agreement entered
into pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, United
States Code, title 31, sections 313 and 314, that is currently in effect or in a period of
provisional application and addresses the elimination, under specified conditions, of collateral
requirements as a condition for entering into any reinsurance agreement with a ceding insurer
domiciled in Minnesota or for allowing the ceding insurer to recognize credit for reinsurance;
new text end

new text begin (ii) a United States jurisdiction that meets the requirements for accreditation under the
National Association of Insurance Commissioners (NAIC) financial standards and
accreditation program; or
new text end

new text begin (iii) a qualified jurisdiction, as determined by the commissioner, which is not otherwise
described in item (i) or (ii) and which meets the following additional requirements, consistent
with the terms and conditions of in-force covered agreements:
new text end

new text begin (A) provides that an insurer which has its head office or is domiciled in such qualified
jurisdiction shall receive credit for reinsurance ceded to a United States-domiciled assuming
insurer in the same manner as credit for reinsurance is received for reinsurance assumed by
insurers domiciled in such qualified jurisdiction;
new text end

new text begin (B) does not require a United States-domiciled assuming insurer to establish or maintain
a local presence as a condition for entering into a reinsurance agreement with any ceding
insurer subject to regulation by the non-United States jurisdiction or as a condition to allow
the ceding insurer to recognize credit for such reinsurance;
new text end

new text begin (C) recognizes the United States state regulatory approach to group supervision and
group capital, by providing written confirmation by a competent regulatory authority, in
such qualified jurisdiction, that insurers and insurance groups that are domiciled or maintain
their headquarters in this state or another jurisdiction accredited by the NAIC shall be subject
only to worldwide prudential insurance group supervision including worldwide group
governance, solvency and capital, and reporting, as applicable, by the commissioner or the
commissioner of the domiciliary state and will not be subject to group supervision at the
level of the worldwide parent undertaking of the insurance or reinsurance group by the
qualified jurisdiction; and
new text end

new text begin (D) provides written confirmation by a competent regulatory authority in such qualified
jurisdiction that information regarding insurers and their parent, subsidiary, or affiliated
entities, if applicable, shall be provided to the commissioner in accordance with a
memorandum of understanding or similar document between the commissioner and such
qualified jurisdiction, including but not limited to the International Association of Insurance
Supervisors Multilateral Memorandum of Understanding or other multilateral memoranda
of understanding coordinated by the NAIC;
new text end

new text begin (2) the assuming insurer must have and maintain, on an ongoing basis, minimum capital
and surplus, or its equivalent, calculated according to the methodology of its domiciliary
jurisdiction, on at least an annual basis as of the preceding December 31 or on the date
otherwise statutorily reported to the reciprocal jurisdiction, in the following amounts:
new text end

new text begin (i) no less than $250,000,000; or
new text end

new text begin (ii) if the assuming insurer is an association, including incorporated and individual
unincorporated underwriters:
new text end

new text begin (A) minimum capital and surplus equivalents, net of liabilities, or own funds of the
equivalent of at least $250,000,000; and
new text end

new text begin (B) a central fund containing a balance of the equivalent of at least $250,000,000;
new text end

new text begin (3) the assuming insurer must have and maintain, on an ongoing basis, a minimum
solvency or capital ratio, as applicable, as follows:
new text end

new text begin (i) if the assuming insurer has its head office or is domiciled in a reciprocal jurisdiction
defined in clause (1), item (i), the ratio specified in the applicable covered agreement;
new text end

new text begin (ii) if the assuming insurer is domiciled in a reciprocal jurisdiction defined in clause (1),
item (ii), a risk-based capital ratio of 300 percent of the authorized control level, calculated
in accordance with the formula developed by the NAIC; or
new text end

new text begin (iii) if the assuming insurer is domiciled in a Reciprocal Jurisdiction defined in clause
(1), item (iii), after consultation with the reciprocal jurisdiction and considering any
recommendations published through the NAIC Committee Process, such solvency or capital
ratio as the commissioner determines to be an effective measure of solvency;
new text end

new text begin (4) the assuming insurer must agree and provide adequate assurance in the form of a
properly executed Form AR-1, Form CR-1, and Form RJ-1 of its agreement to the following:
new text end

new text begin (i) the assuming insurer must provide prompt written notice and explanation to the
commissioner if it falls below the minimum requirements set forth in clause (2) or (3), or
if any regulatory action is taken against the assuming insurer for serious noncompliance
with applicable law;
new text end

new text begin (ii) the assuming insurer must consent in writing to the jurisdiction of the courts of
Minnesota and to the appointment of the commissioner as agent for service of process. The
commissioner may require that consent for service of process be provided to the
commissioner and included in each reinsurance agreement. Nothing in this subdivision shall
limit or in any way alter the capacity of parties to a reinsurance agreement to agree to
alternative dispute resolution mechanisms, except to the extent such agreements are
unenforceable under applicable insolvency or delinquency laws;
new text end

new text begin (iii) the assuming insurer must consent in writing to pay all final judgments, wherever
enforcement is sought, obtained by a ceding insurer or its legal successor, that have been
declared enforceable in the jurisdiction where the judgment was obtained;
new text end

new text begin (iv) each reinsurance agreement must include a provision requiring the assuming insurer
to provide security in an amount equal to 100 percent of the assuming insurer's liabilities
attributable to reinsurance ceded pursuant to that agreement if the assuming insurer resists
enforcement of a final judgment that is enforceable under the law of the jurisdiction in which
it was obtained or a properly enforceable arbitration award, whether obtained by the ceding
insurer or by its legal successor on behalf of its resolution estate;
new text end

new text begin (v) the assuming insurer must confirm that it is not presently participating in any solvent
scheme of arrangement which involves this state's ceding insurers, and agree to notify the
ceding insurer and the commissioner and to provide security in an amount equal to 100
percent of the assuming insurer's liabilities to the ceding insurer, should the assuming insurer
enter into such a solvent scheme of arrangement. The security shall be in a form consistent
with sections 60A.092, subdivision 10, 60A.093, 60A.096, and 60A.097. For purposes of
this regulation, the term "solvent scheme of arrangement" means a foreign or alien statutory
or regulatory compromise procedure subject to requisite majority creditor approval and
judicial sanction in the assuming insurer's home jurisdiction either to finally commute
liabilities of duly noticed classed members or creditors of a solvent debtor, or to reorganize
or restructure the debts and obligations of a solvent debtor on a final basis, and which may
be subject to judicial recognition and enforcement of the arrangement by a governing
authority outside the ceding insurer's home jurisdiction; and
new text end

new text begin (vi) the assuming insurer must agree in writing to meet the applicable information filing
requirements set forth in clause (5);
new text end

new text begin (5) the assuming insurer or its legal successor must provide, if requested by the
commissioner, on behalf of itself and any legal predecessors, the following documentation
to the commissioner:
new text end

new text begin (i) for the two years preceding entry into the reinsurance agreement and on an annual
basis thereafter, the assuming insurer's annual audited financial statements, in accordance
with the applicable law of the jurisdiction of its head office or domiciliary jurisdiction, as
applicable, including the external audit report;
new text end

new text begin (ii) for the two years preceding entry into the reinsurance agreement, the solvency and
financial condition report or actuarial opinion, if filed with the assuming insurer's supervisor;
new text end

new text begin (iii) prior to entry into the reinsurance agreement and not more than semiannually
thereafter, an updated list of all disputed and overdue reinsurance claims outstanding for
90 days or more, regarding reinsurance assumed from ceding insurers domiciled in the
United States; and
new text end

new text begin (iv) prior to entry into the reinsurance agreement and not more than semiannually
thereafter, information regarding the assuming insurer's assumed reinsurance by ceding
insurer, ceded reinsurance by the assuming insurer, and reinsurance recoverable on paid
and unpaid losses by the assuming insurer to allow for the evaluation of the criteria set forth
in clause (6);
new text end

new text begin (6) the assuming insurer must maintain a practice of prompt payment of claims under
reinsurance agreements. The lack of prompt payment will be evidenced if any of the
following criteria is met:
new text end

new text begin (i) more than 15 percent of the reinsurance recoverables from the assuming insurer are
overdue and in dispute as reported to the commissioner;
new text end

new text begin (ii) more than 15 percent of the assuming insurer's ceding insurers or reinsurers have
overdue reinsurance recoverable on paid losses of 90 days or more which are not in dispute
and which exceed for each ceding insurer $100,000, or as otherwise specified in a covered
agreement; or
new text end

new text begin (iii) the aggregate amount of reinsurance recoverable on paid losses which are not in
dispute, but are overdue by 90 days or more, exceeds $50,000,000, or as otherwise specified
in a covered agreement;
new text end

new text begin (7) the assuming insurer's supervisory authority must confirm to the commissioner by
December 31, 2021, and annually thereafter, or at the annual date otherwise statutorily
reported to the reciprocal jurisdiction, that the assuming insurer complies with the
requirements set forth in clauses (2) and (3); and
new text end

new text begin (8) nothing in this subdivision precludes an assuming insurer from providing the
commissioner with information on a voluntary basis.
new text end

new text begin (b) The commissioner shall timely create and publish a list of reciprocal jurisdictions.
The commissioner's list shall include any reciprocal jurisdiction as defined under paragraph
(a), clause (1), items (i) and (ii), and shall consider any other reciprocal jurisdiction included
on the NAIC list. The commissioner may approve a jurisdiction that does not appear on the
NAIC list of reciprocal jurisdictions in accordance with criteria developed under rules issued
by the commissioner. The commissioner may remove a jurisdiction from the list of reciprocal
jurisdictions upon a determination that the jurisdiction no longer meets the requirements of
a reciprocal jurisdiction, in accordance with a process set forth in rules issued by the
commissioner, except that the commissioner shall not remove from the list a reciprocal
jurisdiction as defined under paragraph (a), clause (1), items (i) and (ii). Upon removal of
a reciprocal jurisdiction from the list, credit for reinsurance ceded to an assuming insurer
which has its home office or is domiciled in that jurisdiction shall be allowed, if otherwise
allowed pursuant to law.
new text end

new text begin (c) The commissioner shall timely create and publish a list of assuming insurers that
have satisfied the conditions set forth in this subdivision and to which cessions shall be
granted credit in accordance with this subdivision. The commissioner may add an assuming
insurer to the list if an NAIC accredited jurisdiction has added the assuming insurer to a list
of assuming insurers or if, upon initial eligibility, the assuming insurer submits the
information to the commissioner as required under paragraph (a), clause (4), and complies
with any additional requirements that the commissioner may impose by rule, except to the
extent that they conflict with an applicable covered agreement.
new text end

new text begin (i) If an NAIC-accredited jurisdiction has determined that the conditions set forth in
paragraph (a), clause (2), have been met, the commissioner has the discretion to defer to
that jurisdiction's determination, and add such assuming insurer to the list of assuming
insurers to which cessions shall be granted credit in accordance with this paragraph. The
commissioner may accept financial documentation filed with another NAIC-accredited
jurisdiction or with the NAIC in satisfaction of the requirements of paragraph (a), clause
(2);
new text end

new text begin (ii) When requesting that the commissioner defer to another NAIC-accredited
jurisdiction's determination, an assuming insurer must submit a properly executed Form
RJ-1 and additional information as the commissioner may require. A state that has received
such a request will notify other states through the NAIC Committee Process and provide
relevant information with respect to the determination of eligibility.
new text end

new text begin (d) If the commissioner determines that an assuming insurer no longer meets one or
more of the requirements under this subdivision, the commissioner may revoke or suspend
the eligibility of the assuming insurer for recognition under this subdivision in accordance
with procedures set forth in rule. While an assuming insurer's eligibility is suspended, no
reinsurance agreement issued, amended, or renewed after the effective date of the suspension
qualifies for credit, except to the extent that the assuming insurer's obligations under the
contract are secured in accordance with this section. If an assuming insurer's eligibility is
revoked, no credit for reinsurance may be granted after the effective date of the revocation
with respect to any reinsurance agreements entered into by the assuming insurer, including
reinsurance agreements entered into prior to the date of revocation, except to the extent that
the assuming insurer's obligations under the contract are secured in a form acceptable to
the commissioner and consistent with the provisions of this section.
new text end

new text begin (e) Before denying statement credit or imposing a requirement to post security with
respect to paragraph (d) or adopting any similar requirement that will have substantially the
same regulatory impact as security, the commissioner shall:
new text end

new text begin (1) communicate with the ceding insurer, the assuming insurer, and the assuming insurer's
supervisory authority that the assuming insurer no longer satisfies one of the conditions
listed in paragraph (a), clause (2);
new text end

new text begin (2) provide the assuming insurer with 30 days from the initial communication to submit
a plan to remedy the defect, and 90 days from the initial communication to remedy the
defect, except in exceptional circumstances in which a shorter period is necessary for
policyholder and other consumer protection;
new text end

new text begin (3) after the expiration of 90 days or less, as set out in clause (2), if the commissioner
determines that no or insufficient action was taken by the assuming insurer, the commissioner
may impose any of the requirements as set out in this paragraph; and
new text end

new text begin (4) provide a written explanation to the assuming insurer of any of the requirements set
out in this paragraph.
new text end

new text begin (f) If subject to a legal process of rehabilitation, liquidation, or conservation, as applicable,
the ceding insurer, or its representative, may seek and, if determined appropriate by the
court in which the proceedings are pending, may obtain an order requiring that the assuming
insurer post security for all outstanding ceded liabilities.
new text end

new text begin (g) Nothing in this subdivision limits or in any way alters the capacity of parties to a
reinsurance agreement to agree on requirements for security or other terms in the reinsurance
agreement, except as expressly prohibited by applicable law or rule.
new text end

new text begin (h) Credit may be taken under this subdivision only for reinsurance agreements entered
into, amended, or renewed on or after the effective date of this subdivision, and only with
respect to losses incurred and reserves reported on or after the later of: (1) the date on which
the assuming insurer has met all eligibility requirements pursuant to this subdivision; and
(2) the effective date of the new reinsurance agreement, amendment, or renewal. This
paragraph does not alter or impair a ceding insurer's right to take credit for reinsurance, to
the extent that credit is not available under this subdivision, as long as the reinsurance
qualifies for credit under any other applicable provision of law. Nothing in this subdivision
shall authorize an assuming insurer to withdraw or reduce the security provided under any
reinsurance agreement, except as permitted by the terms of the agreement. Nothing in this
subdivision shall limit, or in any way alter, the capacity of parties to any reinsurance
agreement to renegotiate the agreement.
new text end

Sec. 3.

Minnesota Statutes 2020, section 60A.0921, subdivision 2, is amended to read:

Subd. 2.

Certification procedure.

(a) The commissioner shall post notice on the
department's website promptly upon receipt of any application for certification, including
instructions on how members of the public may respond to the application. The commissioner
may not take final action on the application until at least 30 days after posting the notice.

(b) The commissioner shall issue written notice to an assuming insurer that has applied
and been approved as a certified reinsurer. The notice must include the rating assigned the
certified reinsurer in accordance with subdivision 1. The commissioner shall publish a list
of all certified reinsurers and their ratings.

(c) In order to be eligible for certification, the assuming insurer must:

(1) be domiciled and licensed to transact insurance or reinsurance in a qualified
jurisdiction, as determined by the commissioner under subdivision 3;

(2) maintain capital and surplus, or its equivalent, of no less than $250,000,000 calculated
in accordance with paragraph (d), clause (8). This requirement may also be satisfied by an
association including incorporated and individual unincorporated underwriters having
minimum capital and surplus equivalents net of liabilities of at least $250,000,000 and a
central fund containing a balance of at least $250,000,000;

(3) maintain financial strength ratings from two or more rating agencies acceptable to
the commissioner. These ratings shall be based on interactive communication between the
rating agency and the assuming insurer and shall not be based solely on publicly available
information. These financial strength ratings shall be one factor used by the commissioner
in determining the rating that is assigned to the assuming insurer. Acceptable rating agencies
include the following:

(i) Standard & Poor's;

(ii) Moody's Investors Service;

(iii) Fitch Ratings;

(iv) A.M. Best Company; or

(v) any other nationally recognized statistical rating organization; and

(4) ensure that the certified reinsurer complies with any other requirements reasonably
imposed by the commissioner.

(d) Each certified reinsurer shall be rated on a legal entity basis, with due consideration
being given to the group rating where appropriate, except that an association including
incorporated and individual unincorporated underwriters that has been approved to do
business as a single certified reinsurer may be evaluated on the basis of its group rating.
Factors that may be considered as part of the evaluation process include, but are not limited
to:

(1) certified reinsurer's financial strength rating from an acceptable rating agency. The
maximum rating that a certified reinsurer may be assigned will correspond to its financial
strength rating as outlined in the table below. The commissioner shall use the lowest financial
strength rating received from an approved rating agency in establishing the maximum rating
of a certified reinsurer. A failure to obtain or maintain at least two financial strength ratings
from acceptable rating agencies will result in loss of eligibility for certification;

Ratings	Best	S&P	Moody's	Fitch
Secure - 1	A++	AAA	Aaa	AAA
Secure - 2	A+	AA+, AA, AA-	Aa1, Aa2, Aa3	AA+, AA, AA-
Secure - 3	A	A+, A	A1, A2	A+, A
Secure - 4	A-	A-	A3	A-
Secure - 5	B++, B-	BBB+, BBB, BBB-	Baa1, Baa2, Baa3	BBB+, BBB, BBB-
Vulnerable - 6	B, B-C++, C+, C, C-, D, E, F	BB+, BB, BB-, B+, B, B-, CCC, CC, C, D, R	Ba1, Ba2, Ba3, B1, B2, B3, Caa, Ca, C	BB+, BB, BB-, B+, B, B-, CCC+, CC, CCC-, DD

(2) the business practices of the certified reinsurer in dealing with its ceding insurers,
including its record of compliance with reinsurance contractual terms and obligations;

(3) for certified reinsurers domiciled in the United States, a review of the most recent
applicable NAIC annual statement;

(4) for certified reinsurers not domiciled in the United States, a review annually of such
forms as may be required by the commissioner;

(5) the reputation of the certified reinsurer for prompt payment of claims under
reinsurance agreements, based on an analysis of ceding insurers' reporting of overdue
reinsurance recoverables, including the proportion of obligations that are more than 90 days
past due or are in dispute, with specific attention given to obligations payable to companies
that are in administrative supervision or receivership;

(6) regulatory actions against the certified reinsurer;

(7) the report of the independent auditor on the financial statements of the insurance
enterprise, on the basis described in clause (8);

(8) for certified reinsurers not domiciled in the United States, audited financial statements
(audited United States GAAP basis if available, audited IFRS basis statements are allowed,
but must include an audited footnote reconciling equity and net income to a United States
GAAP basis, or, with permission of the commissioner, audited IFRS statements with
reconciliation to United States GAAP certified by an officer of the company). Upon the
initial application for certification, the commissioner will consider audited financial
statements for the last deleted text begin three deleted text end new text begin two new text end years filed with its non-United States jurisdiction supervisor;

(9) the liquidation priority of obligations to a ceding insurer in the certified reinsurer's
domiciliary jurisdiction in the context of an insolvency proceeding;

(10) a certified reinsurer's participation in any solvent scheme of arrangement, or similar
procedure, which involves United States ceding insurers. The commissioner must receive
prior notice from a certified reinsurer that proposes participation by the certified reinsurer
in a solvent scheme of arrangement; and

(11) other information as determined by the commissioner.

(e) Based on the analysis conducted under paragraph (d), clause (5), of a certified
reinsurer's reputation for prompt payment of claims, the commissioner may make appropriate
adjustments in the security the certified reinsurer is required to post to protect its liabilities
to United States ceding insurers, provided that the commissioner shall, at a minimum,
increase the security the certified reinsurer is required to post by one rating level under
paragraph (d), clause (1), if the commissioner finds that:

(1) more than 15 percent of the certified reinsurer's ceding insurance clients have overdue
reinsurance recoverables on paid losses of 90 days or more which are not in dispute and
which exceed $100,000 for each cedent; or

(2) the aggregate amount of reinsurance recoverables on paid losses which are not in
dispute that are overdue by 90 days or more exceeds $50,000,000.

(f) The assuming insurer must submit such forms as required by the commissioner as
evidence of its submission to the jurisdiction of this state, appoint the commissioner as an
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. The commissioner shall
not certify an assuming insurer that is domiciled in a jurisdiction that the commissioner has
determined does not adequately and promptly enforce final United States judgments or
arbitration awards.

(g) The certified reinsurer must agree to meet filing requirements as determined by the
commissioner, both with respect to an initial application for certification and on an ongoing
basis. All data submitted by certified reinsurers to the commissioner is nonpublic under
section 13.02, subdivision 9. The certified reinsurer must file with the commissioner:

(1) a notification within ten days of any regulatory actions taken against the certified
reinsurer, any change in the provisions of its domiciliary license, or any change in rating
by an approved rating agency, including a statement describing such changes and the reasons
therefore;

(2) an annual report regarding reinsurance assumed, in a form determined by the
commissioner;

(3) an annual report of the independent auditor on the financial statements of the insurance
enterprise, on the basis described in clause (4);

(4) an annual audited financial statement, regulatory filings, and actuarial opinion filed
with the certified reinsurer's supervisor. Upon the initial certification, audited financial
statements for the last deleted text begin three deleted text end new text begin two new text end years filed with the certified reinsurer's supervisor;

(5) at least annually, an updated list of all disputed and overdue reinsurance claims
regarding reinsurance assumed from United States domestic ceding insurers;

(6) a certification from the certified reinsurer's domestic regulator that the certified
reinsurer is in good standing and maintains capital in excess of the jurisdiction's highest
regulatory action level; and

(7) any other relevant information as determined by the commissioner.

Sec. 4. new text begin EFFECTIVE DATE.
new text end

new text begin This act is effective January 1, 2022, and applies to reinsurance contracts entered into
or renewed on or after that date.
new text end