Chapter Ins 52

Ins 52.04(1) (1) Are included under a security arrangement and are subject to withdrawal solely by, and are under the exclusive control of, the ceding insurer, and the form of the funds and the security agreement are approved by the commissioner or the equivalent official of the state of domicile or entry of the ceding insurer.

Ins 52.04(2) (2) Are unencumbered, are securities listed by the securities valuation office of the national association of insurance commissioners and qualifying as admitted assets or cash, are withheld by the ceding insurer, and are subject to withdrawal solely by, and are under the exclusive control of, the ceding insurer;

Ins 52.04(3) (3) Are securities listed by the securities valuation office of the national association of insurance commissioners, including those deemed exempt from filing as defined by the purposes and procedures manual of the securities valuation office, and qualifying as admitted assets or cash, are held in a trust for the exclusive benefit of the ceding insurer and the ceding insurer, reinsurer, reinsurance contract and trust comply with s. Ins 52.05; or

Ins 52.04(4) (4) Are available under a clean, irrevocable, unconditional and evergreen letter of credit which is issued or confirmed by a qualified United States institution and are subject to withdrawal solely by, and are under the exclusive control of, the ceding insurer and the letter of credit is in the possession of the ceding insurer and the ceding insurer, reinsurer and letter of credit comply with s. Ins 52.06. A letter of credit meeting applicable standards of issuer acceptability as of the date of issue or confirmation continues to meet those standards for the purpose of this subsection if after issuance or confirmation the financial institution fails to meet applicable standards of issuer acceptability. The letter of credit continues to be acceptable as funds until its expiration, extension, renewal, modification or amendment, whichever first occurs.

Ins 52.04 History History: Cr. Register, July, 1993, No. 451, eff. 8-1-93; CR 17-004: am. (3) Register December 2017 No. 744, eff. 1-1-18.

Ins 52.05 Ins 52.05 Trust agreements qualifying for security.

Ins 52.05(1) (1) In this section:

Ins 52.05(1)(a) (a) “Beneficiary” means the person for whose sole benefit the trust has been established and any successor of the beneficiary by operation of law, including, but not limited to, any liquidator, rehabilitator, receiver, or conservator.

Ins 52.05(1)(b) (b) “Grantor” means the person that has established a trust, including, but not limited to, an unlicensed, unaccredited assuming insurer that establishes a trust.

Ins 52.05(1)(c) (c) “Reinsurance obligations” means:

Ins 52.05(1)(c)1. 1. Reinsured losses and allocated loss expenses paid by the ceding insurer, but not recovered from the assuming insurer;

Ins 52.05(1)(c)2. 2. Reserves for reinsured losses reported and outstanding;

Ins 52.05(1)(c)3. 3. Reserves for reinsured losses incurred but not reported; and

Ins 52.05(1)(c)4. 4. Reserves for allocated reinsured loss expenses and unearned premiums.

Ins 52.05(2) (2) A ceding insurer may take credit under s. Ins 52.04 (3) only if:

Ins 52.05(2)(a) (a) There is a written trust agreement between the beneficiary, the grantor and a trustee and the trustee is a qualified fiduciary United States financial institution.

Ins 52.05(2)(b) (b) The trust agreement creates a trust account and all the assets are deposited in the trust account.

Ins 52.05(2)(c) (c) The trustee holds all assets in the trust account at the trustee’s office in the United States, except that a bank may apply for the permission of the commissioner or equivalent official of the ceding insurer’s state of domicile or entry to use a foreign branch office of the bank as trustee for trust agreements established under this section. If the commissioner or equivalent official approves the use of a foreign branch office as trustee, then its use must be approved by the beneficiary in writing and the trust agreement must provide that the written notice described in par. (d) 1. must also be presentable, as a matter of legal right, at the trustee’s principal office in the United States.

Ins 52.05(2)(d) (d) The trust agreement provides that:

Ins 52.05(2)(d)1. 1. The beneficiary may withdraw assets from the trust account at any time, without notice to the grantor, subject only to written notice from the beneficiary to the trustee;

Ins 52.05(2)(d)2. 2. No statement or document is required to be presented in order to withdraw assets, except that the beneficiary may be required to acknowledge receipt of withdrawn assets;

Ins 52.05(2)(d)3. 3. It is not subject to any conditions or qualifications outside of the trust agreement; and

Ins 52.05(2)(d)4. 4. It does not contain references to any other agreements or documents except as provided under par. (k).

Ins 52.05(2)(e) (e) The trust agreement is established for the sole benefit of the beneficiary.

Ins 52.05(2)(f) (f) The trust agreement requires the trustee to:

Ins 52.05(2)(f)1. 1. Receive assets and hold all assets in a safe place;

Ins 52.05(2)(f)2. 2. Determine that all assets are in such form that the beneficiary, or the trustee upon direction by the beneficiary, may whenever necessary negotiate any of the assets, without consent or signature from the grantor or any other person;

Ins 52.05(2)(f)3. 3. Furnish to the grantor and the beneficiary a statement of all assets in the trust account upon its inception and at intervals no less frequent than the end of each calendar quarter;

Ins 52.05(2)(f)4. 4. Notify the grantor and the beneficiary within 10 days, of any deposits to or withdrawals from the trust account;

Ins 52.05(2)(f)5. 5. Upon written demand of the beneficiary, immediately take any and all steps necessary to transfer absolutely and unequivocally all right, title and interest in the assets held in the trust account to the beneficiary and deliver physical custody of the assets to the beneficiary; and

Ins 52.05(2)(f)6. 6. Allow no substitutions or withdrawals of assets from the trust account, except on written instructions from the beneficiary, except that the trustee may, without the consent of but with notice to the beneficiary, upon call or maturity of any trust asset, withdraw such asset upon condition that the proceeds are paid into the trust account.

Ins 52.05(2)(g) (g) The trust agreement provides that at least 30 days, but not more than 45 days, prior to termination of the trust account, written notification of termination shall be delivered by the trustee to the beneficiary.

Ins 52.05(2)(h) (h) The trust agreement provides that it is subject to and governed by the laws of the state in which the trust is established.

Ins 52.05(2)(i) (i) The trust agreement prohibits invasion of the trust corpus for the purpose of paying compensation to, or reimbursing the expenses of, the trustee. In order for a letter of credit to qualify as an asset of the trust, the trustee shall have the right and the obligation pursuant to the deed of trust or some other binding agreement, approved by the commissioner, to immediately draw down the full amount of the letter of credit and hold the proceeds in trust for the beneficiaries of the trust if the letter of credit will otherwise expire without being renewed or replaced.

Ins 52.05(2)(j) (j) The trust agreement provides that the trustee is liable for its own negligence, willful misconduct or lack of good faith. The failure of the trustee to draw against a letter of credit in circumstances where such a draw would be required shall be deemed negligence and willful misconduct.

Ins 52.05(2)(k) (k) Notwithstanding other provisions of this subchapter, when a trust agreement is established in conjunction with a reinsurance agreement covering risks other than life, annuities and accident and health, and where it is customary practice to provide a trust agreement for a specific purpose, the trust agreement may, notwithstanding any other conditions in this subchapter, provide that the ceding insurer agrees to use and apply amounts drawn upon the trust account, without diminution because of the insolvency of the ceding insurer or the assuming insurer, for the following purposes:

Ins 52.05(2)(k)1. 1. To pay or reimburse the ceding insurer for the assuming insurer’s share under the specific reinsurance agreement regarding any losses and allocated loss expenses paid by the ceding insurer, but not recovered from the assuming insurer, or for unearned premiums due to the ceding insurer if not otherwise paid by the assuming insurer;

Ins 52.05(2)(k)2. 2. To make payment to the assuming insurer of any amounts held in the trust account that exceed 102% of the actual amount required to fund the assuming insurer’s reinsurance obligations under the specific reinsurance agreement; or

Ins 52.05(2)(k)3. 3. Where the ceding insurer has received notification of termination of the trust account and where the assuming insurer’s entire reinsurance obligations under the specific reinsurance agreement remain unliquidated and undischarged 10 days prior to the termination date, to withdraw amounts equal to the reinsurance obligations and deposit those amounts in a separate account in the name of the ceding insurer in any qualified fiduciary United States financial institution apart from its general assets and in trust for the uses and purposes specified in subds. 1. and 2. which remain executory after the withdrawal and for any period after the termination date.

Ins 52.05(2)(L) (L) Either the reinsurance agreement entered into in conjunction with the trust agreement or the trust agreement stipulates that assets deposited in the trust account shall be valued according to their current fair market value and shall consist only of one or more of the following:

Ins 52.05(2)(L)1. 1. United States legal tender cash;

Ins 52.05(2)(L)2. 2. Certificates of deposit issued by a United States bank and payable in United States legal tender issued by an institution that is not the parent, subsidiary or affiliate of either the grantor or the beneficiary; or

Ins 52.05(2)(L)3. 3. Investments which are admitted assets, permitted under ch. 620, Stats., and not excluded from the calculation of compulsory surplus, if the investments are issued by an institution that is not the parent, subsidiary or affiliate of either the grantor or the beneficiary.

Ins 52.05(2)(m) (m) Any trust agreement provision which permits the trustee to resign only allows resignation to be effective not less than 90 days after receipt by the beneficiary and grantor of written notice of resignation and only after a successor trustee has been duly appointed and approved by the beneficiary and the grantor and all assets in the trust have been duly transferred to the new trustee.

Ins 52.05(2)(n) (n) Any trust agreement provision which permits the grantor to remove the trustee only allows removal to be effective not less than 90 days after receipt of notice of the removal by the trustee and beneficiary and only after a successor trustee has been duly appointed and approved by the beneficiary and the grantor and all assets in the trust have been duly transferred to the new trustee.

Ins 52.05(2)(o) (o) Any trust agreement provision which allows the grantor full and unqualified right to vote any shares of stock in the trust account and to receive from time to time payments of any dividends or interest upon any shares of stock or obligations included in the trust account requires the trustee to promptly on receipt forward dividends or interest to the grantor or promptly deposit dividends or interest in a separate account established in the grantor’s name.

Ins 52.05(2)(p) (p) Any trust agreement provision which gives the trustee authority to invest, or accept substitutions of, any funds in the account, requires the trustee to obtain the prior approval of the beneficiary for each investment or substitution, unless the trust agreement specifies categories of investments acceptable to the beneficiary and authorizes the trustee to invest funds and to accept substitutions which the trustee determines are at least equal in market value to the assets withdrawn and that are consistent with the restrictions in par. (L).

Ins 52.05(2)(q) (q) Any trust agreement provision which permits or requires the trustee, upon termination of the trust account, to deliver assets not withdrawn by the beneficiary to the grantor, also prohibits the trustee from delivering the assets until the beneficiary gives written approval.

Ins 52.05(3) (3) A trust agreement under s. Ins 52.04 (3) may permit the beneficiary to at any time designate a party to which all or part of the trust assets are to be transferred. The transfer may be conditioned upon the trustee receiving, prior to or simultaneously, other specified assets.

Ins 52.05(4) (4) A ceding insurer may take credit under s. Ins 52.04 (3) only if there is a written reinsurance agreement entered into in conjunction with a trust agreement which complies with sub. (2) and the reinsurance agreement:

Ins 52.05(4)(a) (a) Requires the assuming insurer to enter into a trust agreement and to establish a trust account for the benefit of the ceding insurer, and specifies what the agreement is to cover;

Ins 52.05(4)(b) (b) Also contains the provision the trust agreement is required to have under sub. (2) (L), except the reinsurance agreement is not required to also have that provision if the reinsurance agreement covers only risks other than life, annuities or accident and health;

Ins 52.05(4)(c) (c) Requires the assuming insurer, prior to depositing assets with the trustee, to execute assignments or endorsements in blank, or to transfer legal title to the trustee of all shares, obligations or any other assets requiring assignments, in order that the ceding insurer, or the trustee upon the direction of the ceding insurer, may whenever necessary negotiate these assets without consent or signature from the assuming insurer or any other entity;

Ins 52.05(4)(d) (d) Requires that all settlements of account between the ceding insurer and the assuming insurer be made in cash or its equivalent; and

Ins 52.05(4)(e) (e) Stipulates that the assuming insurer and the ceding insurer agree that the assets in the trust account, established pursuant to the provisions of the reinsurance agreement, may be withdrawn by the ceding insurer at any time, notwithstanding any other provisions in the reinsurance agreement, and shall be utilized and applied by the ceding insurer or its successors in interest by operation of law, including, but not limited to, by any liquidator, rehabilitator, receiver or conservator of the ceding insurer, without diminution because of insolvency on the part of the ceding insurer or the assuming insurer, only for the following purposes:

Ins 52.05(4)(e)1. 1. To reimburse the ceding insurer for the assuming insurer’s share of premiums returned to the owners of policies reinsured under the reinsurance agreement because of cancellations of the policies;

Ins 52.05(4)(e)2. 2. To reimburse the ceding insurer for the assuming insurer’s share of surrenders and benefits or losses paid by the ceding insurer pursuant to the provisions of the policies reinsured under the reinsurance agreement;

Ins 52.05(4)(e)3. 3. To fund an account with the ceding insurer in an amount at least equal to the deduction, for reinsurance ceded, from the ceding insurer liabilities for policies ceded under the agreement. The account shall include, but not be limited to, amounts for policy reserves, claims and losses incurred (including losses incurred but not reported), loss adjustment expenses and unearned premium reserves; and

Ins 52.05(4)(e)4. 4. To pay any other amounts the ceding insurer claims are due under the reinsurance agreement.

Ins 52.05(4)(f) (f) If it gives the assuming insurer the right to seek to withdraw from the trust account all or any part of the trust assets, restricts that right by requiring:

Ins 52.05(4)(f)1. 1. The prior written approval by the ceding insurer which the reinsurance agreement may require the ceding insurer to not unreasonably or arbitrarily withhold; and

Ins 52.05(4)(f)2. 2. That withdrawal may be approved or permitted only if after the withdrawal the market value of the trust account is no less than 102% of the required amount or if the assuming insurer, at the time of withdrawal, replaces the withdrawn assets with other qualified assets having a market value equal to the market value of the assets withdrawn so as to maintain at all times the deposit in the required amount.

Ins 52.05(4)(g) (g) Does not require the return of amounts withdrawn under the provision required under par. (e) except the reinsurance agreement may require the ceding insurer to return:

Ins 52.05(4)(g)1. 1. Any amount withdrawn in excess of the actual amounts required for par. (e) 1., 2., or 3., or in the case of par. (e) 4., any amounts that are subsequently determined not to be due; and

Ins 52.05(4)(g)2. 2. Interest payments, at a rate not in excess of the prime rate of interest, on the amounts held under par. (e) 3.

Ins 52.05(4)(h) (h) If it permits the award of attorneys’ fees or costs or interest at a rate other than provided under par. (g) 2., permits it only as the result of an award by any arbitration panel or court of competent jurisdiction and only of:

Ins 52.05(4)(h)1. 1. Interest at a rate different from that provided in par. (g) 2;

Ins 52.05(4)(h)2. 2. Court or arbitration costs;

Ins 52.05(4)(h)3. 3. Attorneys’ fees; or

Ins 52.05(4)(h)4. 4. Any other reasonable expenses.

Ins 52.05(5) (5) The failure of any trust agreement to specifically identify the beneficiary shall not be construed to affect any actions or rights which the commissioner or equivalent official may take or possess pursuant to the provisions of the laws of the state of domicile or entry of the licensed insurer.

Ins 52.05 History History: Cr. Register, July, 1993, No. 451, eff. 8-1-93; am. (4) (b), Register, December, 1995, No. 480, eff. 1-1-96; CR 17-004: am. (2) (i), (j) Register December 2017 No. 744, eff. 1-1-18; CR 21-066: am. (2) (k) (intro.) Register May 2022 No. 797, eff. 6-1-22.

Ins 52.06 Ins 52.06 Letters of credit.

Ins 52.06(1) (1) In this section “beneficiary” means the insurer for whose benefit the letter of credit has been established and any successor of the beneficiary by operation of law, including, but not limited to, a court-appointed domiciliary receiver, including, but not limited to, a conservator, rehabilitator or liquidator.

Ins 52.06(2) (2) A ceding insurer may take credit under s. Ins 52.04 (4) only if the letter of credit complies with all of the following:

Ins 52.06(2)(a) (a) The letter of credit is clean, irrevocable and unconditional.

Ins 52.06(2)(b) (b) The letter of credit contains an issue date and date of expiration and stipulates that the beneficiary need only draw a sight draft under the letter of credit and present it to obtain funds and that no other document need be presented.

Ins 52.06(2)(c) (c) The letter of credit states that it is not subject to any condition or qualifications outside of the letter of credit.

Ins 52.06(2)(d) (d) The letter of credit itself shall not contain reference to any other agreements, documents or entities, except as provided in sub. (3) (a) and (b).

Ins 52.06(2)(e) (e) If the heading of the letter of credit includes a section which includes notations to provide a reference for the letter of credit, the section shall be boxed section and clearly marked to indicate that the information is for internal identification purposes only.

Ins 52.06(2)(f) (f) The letter of credit states that the obligation of the qualified United States financial institution under the letter of credit is in no way contingent upon reimbursement.

Ins 52.06(2)(g) (g) The term of the letter of credit is for at least one year and the letter of credit contains a clause which prevents the expiration of the letter of credit unless the issuer gives written notice to the ceding insurer. The “evergreen clause” shall provide for a period of no less than 30 days’ notice to the ceding insurer prior to the expiration date for nonrenewal.

Ins 52.06(2)(h) (h) The letter of credit states whether it is subject to and governed by the laws of this state or the uniform customs and practice for documentary credits of the international chamber of commerce (Publication 600) and that all drafts drawn under the letter of credit are presentable at an office in the United States of a qualified United States financial institution.

Ins 52.06(2)(i) (i) If the letter of credit is made subject to the uniform customs and practice for documentary credits of the international chamber of commerce (Publication 600), the letter of credit specifically addresses and makes provision for an extension of time to draw against the letter of credit if any of the occurrences specified in Article 36 of Publication 600 occur.

Ins 52.06(2)(j) (j) The letter of credit is issued or confirmed by a qualified United States financial institution authorized to issue letters of credit.

Ins 52.06(2)(k) (k) If the letter of credit is issued by a financial institution which is not a qualified United States financial institution:

Ins 52.06(2)(k)1. 1. The issuing financial institution formally designates the confirming qualified United States financial institution as its agent for the receipt and payment of the drafts; and

Ins 52.06(2)(k)2. 2. The letter of credit “evergreen clause” under par. (g) requires the confirming qualified United States financial institution to give written notice to the ceding insurer at least 30 days prior to expiration date for nonrenewal.

Ins 52.06(3) (3) A ceding insurer may take credit under s. Ins 52.04 (4) only if there is a written reinsurance agreement in conjunction with the letter of credit and the reinsurance agreement: