SB 634 - This act enacts provisions relating to credit for reinsurance as an asset or reduction from liability of an insurer. The act authorizes the Director of the Department of Commerce and Insurance to promulgate certain rules, as specified in the act, to establish requirements relating to or setting forth the valuation of assets or reserve credits, the amount and forms of security supporting reinsurance agreements described in the act, or the circumstances under which credit will be reduced or eliminated. (Sections 375.246.1 and 375.246.2).
In addition to as currently provided by law, credit for reinsurance shall be allowed when the reinsurance is ceded to an assuming insurer meeting certain conditions. (Section 375.246.1(6)(a)). The assuming insurer shall have its head office or be domiciled in, as applicable, and licensed in a reciprocal jurisdiction, as such term is defined in the act. (Section 375.246.1(6)(a)a). The assuming insurer shall have and maintain minimum capital and surplus, or its equivalent, calculated according to the methodology of its domiciliary jurisdiction in an amount to be set forth by the Director by rule. If the assuming insurer is an association, it shall maintain the same, net of liabilities, and a central fund containing an amount to be set forth by rule. (Section 375.246.1(6)(a)b). The assuming insurer shall have and maintain a minimum solvency or capital ratio, as applicable, which shall be set forth by rule. If the assuming insurer is an association, it shall have and maintain a minimum solvency and capital ratio in the reciprocal jurisdiction where the insurer has its head office or is domiciled, as applicable, and is also licensed. (Section 375.246.1(6)(a)c). The assuming insurer shall agree and provide adequate assurance to the Director that it will provide prompt written notice and explanation to the Director if it falls below minimum capital and surplus requirements outlined in the act, or if any regulatory action is taken against it for serious noncompliance with the law. The assuming insurer shall consent in writing to the jurisdiction of the courts of this state and to the appointment of the Director as agent for service of process. The Director may require that the consent for service of process be provided for and included in each reinsurance agreement. These provisions shall not alter the capacity of the parties to a reinsurance agreement to agree to enforceable alternative dispute resolution mechanisms. The assuming insurer shall consent in writing to pay all final judgments obtained by a ceding insurer or its legal successor, where enforcement is sought, which have been declared enforceable in the jurisdiction where the judgment was obtained. Each reinsurance agreement shall require the assuming insurer to provide security, in an amount equal to 100% of the assuming insurer's liabilities attributable to reinsurance under the agreement, if the assuming insurer resists enforcement of an enforceable final judgment or arbitration award. The assuming insurer shall confirm that it is not presently participating in any solvent scheme of arrangement involving this state's ceding insurers, and shall agree to notify the ceding insurer and the Director and to provide security as specified by rule in an amount equal to 100% of the assuming insurer's liabilities to the ceding insurer should the assuming insurer enter into such a solvent scheme of arrangement. (Section 375.246.1(6)(a)d). The assuming insurer or its legal successor shall provide, if requested by the Director, certain documentation as specified by rule. (Section 375.246.1(6)(a)e). The assuming insurer shall maintain a practice of prompt payment of claims under reinsurance agreements as specified by rule. (Section 375.246.1(6)(a)f). The assuming insurer's supervisory authority shall confirm to the Director on an annual basis that the assuming insurer complies with the minimum capital and surplus or solvency or capital ratio requirements specified in this act. (Section 375.246.1(6)(a)g). Nothing in these provisions precludes an assuming insurer from providing the Director with information on a voluntary basis. (Section 375.246.1(6)(a)h).
This act requires the Director to create and publish a list of reciprocal jurisdictions. (Section 375.246.1(6)(b)). The Director's list shall contain any jurisdiction meeting the definitions provided in the act and shall consider any other reciprocal jurisdiction included on the list published by the National Association of Insurance Commissioners (NAIC). The Director may approve additional jurisdictions under rules promulgated by the Director. (Section 375.246.1(6)(b)a). The Director may remove a jurisdiction from the list upon a determination that the jurisdiction no longer meets the requirements of a reciprocal jurisdiction, except that the Director shall not remove a non-United States jurisdiction that is subject to a covered agreement, as defined in the act, or a United States jurisdiction that meets the requirements for NAIC accreditation. (Section 375.246.1(6)(b)b).
The Director shall create and publish a list of assuming insurers that have satisfied the conditions set forth in this act and to which cessions shall be granted credit as specified in the act. The Director may add an assuming insurer to the list if an NAIC accredited jurisdiction has added the assuming insurer to such a list, or if the eligible assuming insurer submits certain information to the Director, as provided in the act, and complies with any additional requirements the Director may adopt that are not in conflict with an applicable covered agreement. (Section 375.246.1(6)(c)).
If the Director determines an assuming insurer no longer meets one or more requirements for recognition under the act, the Director may revoke or suspend the insurer's eligibility for recognition in accordance with the act. (Section 375.246.1(6)(d)). While an assuming insurer's eligibility is suspended, no reinsurance agreement issued, amended, or renewed after the date of suspension shall qualify for credit, except to the extent that the assuming insurer's obligations are secured as provided by law. (Section 375.246.1(6)(d)a). If an assuming insurer's eligibility is revoked, no credit for reinsurance may be granted after the effective date of revocation with respect to any reinsurance agreement entered into by the insurer, before or after the revocation, except to the extent the insurer's obligations are secured as provided by law. (Section 375.246.1(6)(d)b).
If subject to a legal process of rehabilitation, liquidation, or conservation, as applicable, the ceding insurer or its representative may seek a court order requiring that the assuming insurer post security for all outstanding liabilities. (Section 375.246.1(6)(e)).
Nothing in this act shall limit or in any way alter the capacity of parties to a reinsurance agreement to agree on requirements for security or other terms in that reinsurance agreement, except as expressly prohibited by law. (Section 375.246.1(6)(f)).
Credit may be taken under this act only for reinsurance agreements entered into, amended, or renewed on or after January 1, 2021, and only with respect to losses incurred and reserves reported on or after the later of: the date on which the assuming insurer has met applicable eligibility requirements, or the effective date of the new reinsurance agreement, amendment, or renewal. (Section 375.246.1(6)(g)). Nothing in this act shall alter or impair a ceding insurer's right to take credit for reinsurance under the act as long as the reinsurance qualifies for credit under another applicable provision of law. (Section 375.246.1(6)(g)a). Nothing in this act shall limit or in any way alter the capacity of parties to any reinsurance agreement to renegotiate the agreement. (Section 375.246.1(6)(g)b).
The act authorizes the Director to adopt rules and regulations applicable to reinsurance agreements relating to certain life insurance policies, variable annuities with guaranteed benefits, long-term care insurance policies, and such other life and health insurance and annuity products as to which the NAIC adopts model rules with respect to credit for reinsurance. (Section 375.246.4(2)(a)). A rule adopted under these provisions regarding life insurance policies may apply to any treaty containing policies issued on or after January 1, 2015, or policies issued prior to January 1, 2015, if risk pertaining to such pre-2015 policies is ceded in connection with a treaty on or after January 1, 2015. (Section 375.246.4(2)(b)). A rule adopted under these provisions may require the ceding insurer, in calculating the amounts or forms of security required to be held, to use the NAIC valuation manual to the extent applicable. (Section 375.246.4(2)(c)). Regulations adopted under this authority shall not apply to an assuming insurer that: meets the conditions set forth in this act or, if this state has not fully implemented the provisions of this act, is operating in at least 5 states that have implemented the provisions of this act; is certified in this state; or maintains at least $250,000,000 in capital and surplus as specified in the act and is licensed in at least 26 states, or licensed in at least 10 states and licensed or accredited in at least 35 states. (Section 375.246.4(2)(d)). The authority to adopt regulations under these provisions does not limit the Director's authority to otherwise adopt regulations relating to credit for reinsurance. (Section 375.246.4(2)(e)).
This act is substantially similar to HB 1619 (2020) and provisions in HCS/SB 551 (2020).
ERIC VANDER WEERD