Chapter Ins 52

Ins 52.06 History History: Cr. Register, July, 1993, No. 451, eff. 8-1-93; CR 17-004: am. (2) (h), (i) Register December 2017 No. 744, eff. 1-1-18.

Ins 52.065 Ins 52.065 Concentration Risk.

Ins 52.065(1) (1) A ceding insurer shall take steps to manage its reinsurance recoverable balances proportionate to its own book of business. A domestic ceding insurer shall notify the commissioner within 30 days after reinsurance recoverable from any single assuming insurer, or group of affiliated assuming insurers, exceeds 50% of the domestic ceding insurer’s last reported surplus to policyholders, or after it determined that reinsurance recoverable from any single assuming insurer, or of affiliated assuming insurers, is likely to exceed this limit. The notification shall include an explanation demonstrating that the exposure is safely managed by the domestic ceding insurer.

Ins 52.065(2) (2) A ceding insurer shall take steps to diversity 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% 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 include an explanation demonstrating that the exposure is safely managed by the domestic ceding insurer.

Ins 52.065 History History: CR 17-004: cr. Register December 2017 No. 744, eff. 1-1-18; corrections made under s. 35.17, Stats., Register December 2017 No. 744.

Ins 52.07 Ins 52.07 Applicability.

Ins 52.07(1) (1) This subchapter applies to determine whether credit may be taken for:

Ins 52.07(1)(a) (a) Any reinsurance ceded under agreements entered into on or after August 1, 1993; or

Ins 52.07(1)(b) (b) Any reinsurance ceded if the reinsurance agreement is renewed by agreement on or after August 1, 1993.

Ins 52.07(2) (2) Section Ins 6.73 continues to apply for the purpose of determining whether credit may be taken for reinsurance which is not subject to this subchapter under sub. (1).

Ins 52.07 Note Note: Ins 6.73 was repealed eff. 8-1-93.

Ins 52.07(3) (3) This subchapter and ch. Ins 55 are in addition to and do not limit the commissioner’s authority under s. 618.21 (1) (a), 618.23 (1) (a), 618.26 (1) (a), 623.11, 623.12 or 623.21, or ch. 645, Stats., or s. Ins 51.80. Even if credit for reinsurance is permitted under this chapter and ch. Ins 55, the commissioner may under those provisions require a licensed insurer to exclude the effects of the credit for the purpose of determining compliance with security or compulsory surplus.

Ins 52.07(4) (4) Nothing in this subchapter or ch. Ins 55 relieves an insurer or an officer or director of an insurer or an accountant or actuary from responsibility under s. 627.23 (3), Stats., or fiduciary or professional responsibility, to assess the financial condition of a reinsurer. Accreditation by the commissioner does not create a presumption that a reinsurer is in compliance with this subchapter or that it is in sound financial condition and no reinsurer or officer, employee or agent of a reinsurer may make such a representation.

Ins 52.07(5) (5) Except to the extent necessary to prevent a conflict with an applicable covered agreement, this subchapter does not limit or change the requirements for town mutual insurers under ss. 612.31 and 612.33, Stats. This subchapter applies to the state life fund.

Ins 52.07 History History: Cr. Register, July, 1993, No. 451, eff. 8-1-93; correction in (3) made under s. 13.92 (4) (b) 7., Stats., Register February 2013 No. 686; CR 21-066: am. (1) (intro.), (2) to (5) Register May 2022 No. 797, eff. 6-1-22.

subch. II of ch. Ins 52 Subchapter II — Credit for Reinsurance Involving Term and Universal Life Reserve Financing

Ins 52.20 Ins 52.20 Purpose, intent, and applicability. In addition to provisions contained at s. Ins 2.80, the following apply to this subchapter:

Ins 52.20(1) (1) Purpose and intent. The purpose and intent of this subchapter is to establish uniform, national standards governing reserve financing arrangements pertaining to life insurance policies containing guaranteed nonlevel gross premium, guaranteed nonlevel benefits and universal life insurance policies with secondary guarantees; and to ensure that, with respect to each such financing arrangement, funds consisting of primary security and other security are held by or on behalf of ceding insurers in the forms and amounts required. In general, reinsurance that is ceded for reserve financing purposes has one or more of the following characteristics: some or all of the assets used to secure the reinsurance treaty or to capitalize the reinsurer are issued by the ceding insurer or its affiliates; or are not unconditionally available to satisfy the general account obligations of the ceding insurer; or create a reimbursement, indemnification or other similar obligation on the part of the ceding insurer or any if its affiliates, other than a payment obligation under a derivative contract acquired in the normal course and used to support and hedge liabilities pertaining to the actual risks in the policies ceded pursuant to the reinsurance treaty.

Ins 52.20(2) (2) Applicability. This subchapter shall apply to reinsurance treaties that cede liabilities pertaining to covered policies issued by any life insurance company domiciled in this state. Subchapter I and this subchapter shall both apply to such reinsurance treaties; provided, that in the event of a direct conflict between the provisions of this subchapter and subch. I, the provisions of this subchapter shall apply, but only to the extent of the conflict.

Ins 52.20 History History: CR 21-066: cr. Register May 2022 No. 797, eff. 6-1-22; correction in (intro.) made under s. 35.17, Stats., Register May 2022 No. 797.

Ins 52.21 Ins 52.21 Exemptions. This subchapter does not apply to the situations described below:

Ins 52.21(1) (1) Reinsurance of:

Ins 52.21(1)(a) (a) Policies that satisfy the criteria for exemption set forth in s. Ins 2.80 (5) (k) or (L) that were issued prior to June 1, 2022.

Ins 52.21(1)(b) (b) Portions of policies that satisfy the criteria for exemption set forth in s. Ins 2.80 (5) (j), that were issued prior to June 1, 2022.

Ins 52.21(1)(c) (c) Any universal life policy that meets the following requirements:

Ins 52.21(1)(c)1. 1. Secondary guarantee period, if any, is 5 years or less.

Ins 52.21(1)(c)2. 2. Specified premium for the secondary guarantee period is not less than the net level reserve premium for the secondary guarantee period based on the commissioners standard ordinary valuation tables and valuation interest rate applicable to the issue year of the policy; and

Ins 52.21(1)(c)3. 3. The initial surrender charge is not less than 100% of the first year annualized specified premium for the secondary guarantee period.

Ins 52.21(1)(d) (d) Credit life insurance.

Ins 52.21(1)(e) (e) Any variable life insurance policy that provides for life insurance, the amount or duration of which varies according to the investment experience of any separate account or accounts.

Ins 52.21(1)(f) (f) Any group life insurance certificate unless the certificate provides for a stated or implied schedule of maximum gross premiums required in order to continue coverage in force for a period in excess of one year.

Ins 52.21(2) (2) Reinsurance ceded to an assuming insurer that meets the applicable requirements of s. Ins 52.02 (4);

Ins 52.21(3) (3) Reinsurance ceded to an assuming insurer that meets the applicable requirements of s. Ins 52.02 (1), (2), or (3), and that in addition:

Ins 52.21(3)(a) (a) Prepares statutory financial statements in compliance with the national association of insurance commissioners accounting practices and procedures manual, without any departures from national association of insurance commissioners statutory accounting practices and procedures pertaining to the admissibility or valuation of assets or liabilities that increase the assuming insurer’s reported surplus and are material enough that they need to be disclosed in the financial statement of the assuming insurer pursuant to statement of statutory accounting principles no. 1; and

Ins 52.21(3)(b) (b) Is not in a company action level event, regulatory action level event, authorized control level event, or mandatory control level event as those terms are defined in s. Ins 51.01, when its risk-based capital is calculated in accordance with the life risk-based capital report including overview and instructions for companies, as the same may be amended by the national association of insurance commissioners from time to time, without deviation; or

Ins 52.21(4) (4) Reinsurance ceded to an assuming insurer that meets the applicable requirements of s. Ins 52.02 (1), (2), or (3), and that in addition, the following:

Ins 52.21(4)(a) (a) Is not an affiliate, as that term is defined in s. Ins 40.01 (2), of the insurer ceding the business to the assuming insurer; or any insurer that directly or indirectly ceded the business to that ceding insurer;

Ins 52.21(4)(b) (b) Prepares statutory financial statements in compliance with the national association of insurance commissioners accounting practices and procedures manual;

Ins 52.21(4)(c) (c) Is both licensed or accredited in at least 10 states, including its state of domicile, and is not licensed in any state as a captive, special purpose vehicle, special purpose financial captive, special purpose life reinsurance company, limited purpose subsidiary, or any other similar licensing regime; and

Ins 52.21(4)(d) (d) Is not, or would not be, below 500% of the authorized control level risk based capital as that term is defined in s. Ins 51.01 (3), when calculated in accordance with the life risk based capital report including overview and instructions for companies, as the same may be amended by the national association of insurance commissioners from time to time, without deviation, and without recognition of any departures from national association of insurance commissioners statutory accounting practices and procedures pertaining to the admission or valuation of assets or liabilities that increase the assuming insurer’s reported surplus; or

Ins 52.21(5) (5) Reinsurance ceded to an assuming insurer that:

Ins 52.21(5)(a) (a) Meets the requirements of s. Ins 52.02 (4m) or (4r); or

Ins 52.21(5)(b) (b) Maintains at least $250,000,000 in capital and surplus when determined in accordance with the national association of insurance commissioners accounting practices and procedures manual, including all amendments thereto adopted by the national association of insurance commissioners, excluding the impact of any permitted or prescribed practices; and is

Ins 52.21(5)(b)1. 1. Licensed in at least 26 states; or

Ins 52.21(5)(b)2. 2. Licensed in at least 10 states, and licensed or accredited in a total of at least 35 states.

Ins 52.21(6) (6) Reinsurance not otherwise exempt under subs. (1) to (5), if the commissioner, after consulting with the national association of insurance commissioners financial analysis working group or other group of regulators designated by the national association of insurance commissioners, as applicable, determines under all the facts and circumstances that all of the following apply:

Ins 52.21(6)(a) (a) The risks are clearly outside of the intent and purpose of this regulation as provided in s. Ins 52.20 (1),

Ins 52.21(6)(b) (b) The risks are included within the scope of this regulation only as a technicality; and,

Ins 52.21(6)(c) (c) The application of this regulation to those risks is not necessary to provide appropriate protection to policyholders.

Ins 52.21(6)(d) (d) The commissioner shall publicly disclose any decision made pursuant to this subsection to exempt a reinsurance treaty from this regulation, as well as the general basis therefor and including a summary description of the treaty.

Ins 52.21 History History: CR 21-066: cr. Register May 2022 No. 797, eff. 6-1-22; correction in (1) (c) 1., (4) (a), (b) made under s. 35.17, Stats., Register May 2022 No. 797.

Ins 52.22 Ins 52.22 Definitions. In this subchapter, unless the context otherwise requires:

Ins 52.22(1) (1) “Actuarial method” means the methodology used to determine the required level of primary security.

Ins 52.22(2) (2) “Covered policies” means the following: subject to the exemptions described in s. Ins 52.21 covered policies are those policies, other than grandfathered policies, of the following policy types:

Ins 52.22(2)(a) (a) Life insurance policies with guaranteed nonlevel gross premiums and/or guaranteed nonlevel benefits, except for flexible premium universal life insurance policies; or,

Ins 52.22(2)(b) (b) Flexible premium universal life insurance policies with provisions resulting in the ability of a policyholder to keep a policy in force over a secondary guarantee period.

Ins 52.22(3) (3) “Grandfathered policies” means policies of the types in sub. (2) that were issued prior to January 1, 2015; and ceded, as of December 31, 2014, as part of a reinsurance treaty that would not have met one of the exemptions set forth in s. Ins 52.21, had that section then been in effect.

Ins 52.22(4) (4) “Non-covered policies” means any policy that does not meet the definition of covered policies, including grandfathered policies.

Ins 52.22(5) (5) “Other security” means any security acceptable to the commissioner other than security meeting the definition of primary security.

Ins 52.22(6) (6) “Primary security” means the following forms of security:

Ins 52.22(6)(a) (a) Cash meeting the requirements of s. Ins 52.04 (1);

Ins 52.22(6)(b) (b) Securities listed by the securities valuation office meeting the requirements of s. Ins 52.04 (2) and (3), but excluding any synthetic letter of credit, contingent note, credit-linked note, or other similar security that operates in a manner similar to a letter of credit, and excluding any securities issued by the ceding insurer of any of its affiliates; and

Ins 52.22(6)(c) (c) For security held in connection with funds-withheld or modified coinsurance reinsurance treaties, primary security may include any of the following:

Ins 52.22(6)(c)1. 1. Commercial loans in good standing of CM3 quality and higher, as assigned by the national association of insurance commissioners;

Ins 52.22(6)(c)2. 2. Policy loans; and

Ins 52.22(6)(c)3. 3. Derivatives acquired in the normal course and used to support and hedge liabilities pertaining to the actual risks in the policies ceded pursuant to the reinsurance treaty.

Ins 52.22(7) (7) “Required level of primary security” means the dollar amount determined by applying the actuarial method to the risks ceded with respect to covered policies, but not more than the total reserve ceded.

Ins 52.22(8) (8) “Universal life insurance policy” has the meaning provided under s. Ins 2.80 (3) (L).

Ins 52.22(9) (9) “Valuation manual” means the valuation manual adopted by the national association of insurance commissioners as described s. 623.06 (9) (b), Stats., with all amendments adopted by the national association of insurance commissioners that are effective for the financial statement date on which credit for reinsurance is claimed.

Ins 52.22(10) (10) “VM-20” means the requirements for principle-based reserves for life products, including all relevant definitions, from the valuation manual.

Ins 52.22 History History: CR 21-066: cr. Register May 2022 No. 797, eff. 6-1-22.

Ins 52.23 Ins 52.23 Actuarial method.

Ins 52.23(1) (1) Actuarial method. The actuarial method to establish the required level of primary security for each reinsurance treaty subject to this regulation shall be VM-20, applied on a treaty-by-treaty basis, including all relevant definitions, from the valuation manual as then in effect, applied as follows:

Ins 52.23(1)(a) (a) For covered policies described in s. Ins 52.22 (2) (a), the actuarial method is the greater of the deterministic reserve or the net premium reserve regardless of whether the criteria for exemption testing can be met. However, if the covered policies do not meet the requirements of the stochastic reserve exclusion test in the valuation manual, then the actuarial method is the greatest of the deterministic reserve, the stochastic reserve, or the net premium reserve. In addition, if such covered policies are reinsured in a reinsurance treaty that also contains covered policies described in s. Ins 52.22 (2) (b), the ceding insurer may elect to instead use par. (b) below as the actuarial method for the entire reinsurance agreement. Whether this paragraph or par. (b) are used, the actuarial method must comply with any requirements or restrictions that the valuation manual imposes when aggregating these policy types for purposes of principle-based reserve calculations.

Ins 52.23(1)(b) (b) For covered policies described in s. Ins 52.22 (2) (b), the actuarial method is the greatest of the deterministic reserve, the stochastic reserve, or the net premium reserve, regardless of whether the criteria for exemption testing can be met.

Ins 52.23(1)(c) (c) Except as provided in par. (d), the actuarial method is to be applied on a gross basis to all risks with respect to the covered policies as originally issued or assumed by the ceding insurer.

Ins 52.23(1)(d) (d) If the reinsurance treaty cedes less than 100% of the risk with respect to the covered policies then the required level of primary security may be reduced as follows:

Ins 52.23(1)(d)1. 1. If a reinsurance treaty cedes only a quota share of some or all of the risks pertaining to the covered policies, the required level of primary security, as well as any adjustment under subd. 3., may be reduced to a pro rata portion in accordance with the percentage of the risk ceded;

Ins 52.23(1)(d)2. 2. If the reinsurance treaty in a non-exempt arrangement cedes only the risks pertaining to a secondary guarantee, the required level of primary security may be reduced by an amount determined by applying the actuarial method on a gross basis to all risks, other than risks related to the secondary guarantee, pertaining to the covered policies, except that for covered policies for which the ceding insurer did not elect to apply the provisions of VM-20 to establish statutory reserves, the required level of primary security may be reduced by the statutory reserve retained by the ceding insurer on those covered policies, where the retained reserve of those covered policies should be reflective of any reduction pursuant to the cession of mortality risk on a yearly renewable term basis in an exempt arrangement;

Ins 52.23(1)(d)3. 3. If a portion of the covered policy risk is ceded to another reinsurer on a yearly renewable term basis in an exempt arrangement, the required level of primary security may be reduced by the amount resulting by applying the actuarial method including the reinsurance section of VM-20 to the portion of the covered policy risks ceded in the exempt arrangement, except that for covered policies issued prior to January 1, 2017, this adjustment is not to exceed [cx/ (2 * number of reinsurance premiums per year)] where cx is calculated using the same mortality table used in calculating the net premium reserve; and

Ins 52.23(1)(d)4. 4. For any other treaty ceding a portion of risk to a different reinsurer, including but not limited to stop loss, excess of loss and other non-proportional reinsurance treaties, there will be no reduction in the required level of primary security.

Ins 52.23(1)(d)5. 5. It is possible for any combination of subds. 1. to 4. above to apply. Such adjustments to the required level of primary security will be done in the sequence that accurately reflects the portion of the risk ceded via the treaty. The ceding insurer should document the rationale and steps taken to accomplish the adjustments to the required level of primary security due to the cession of less than 100% of the risk.

Ins 52.23(1)(d)6. 6. The adjustments for other reinsurance will be made only with respect to reinsurance treaties entered into directly by the ceding insurer. The ceding insurer will make no adjustment as a result of a retrocession treaty entered into by the assuming insurers.

Ins 52.23(1)(e) (e) In no event will the required level of primary security resulting from application of the actuarial method exceed the amount of statutory reserves ceded.

Ins 52.23(1)(f) (f) If the ceding insurer cedes risks with respect to covered policies, including any riders, in more than one reinsurance treaty subject to this subchapter, in no event will the aggregate required level of primary security for those reinsurance treaties be less than the required level of primary security calculated using the actuarial method as if all risks ceded in those treaties were ceded in a single treaty subject to this subchapter;

Ins 52.23(1)(g) (g) If a reinsurance treaty subject to this subchapter cedes risk on both covered and non-covered policies, credit for the ceded reserves shall be determined as follows:

Ins 52.23(1)(g)1. 1. The actuarial method shall be used to determine the required level of primary security for the covered policies, and s. Ins 52.24, shall be used to determine the reinsurance credit for the covered policy reserves; and,

Ins 52.23(1)(g)2. 2. Credit for the non-covered policy reserves shall be granted only to the extent that security, in addition to the security held to satisfy the requirements of subd. 1., is held by or on behalf of the ceding insurer in accordance with ss. Ins 52.02 and 52.04. Any primary security used to meet the requirements of this subdivision may not be used to satisfy the required level of primary security for the covered policies.

Ins 52.23(2) (2) Valuation used for purposes of calculations. For the purposes of both calculating the required level of primary security pursuant to the actuarial method and determining the amount of primary security and other security, as applicable, held by or on behalf of the ceding insurer, the following shall apply: