8. If the commissioner has principal regulatory oversight of the trust, at any time after the assuming insurer has permanently discontinued writing new business for at least three years, the commissioner may authorize a reduction in the required trusteed surplus, but only after finding, based on an assessment of the risk, that the new required surplus level is adequate for the protection of U.S. ceding insurers, policyholders and claimants. 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 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 thirty percent (30%) of the assuming insurer’s liabilities attributable to reinsurance ceded by U.S. ceding insurers.
SECTION 6. Ins 52.02(4m) is created to read:
(4m) The reinsurance is ceded to an assuming insurer that has been certified by the commissioner as a reinsurer in this state and secures its obligations in accordance with the requirements of this subsection.
(a) In order to be eligible for certification, the assuming insurer shall meet the following requirements:
1. The assuming insurer shall be domiciled and licensed to transact insurance or reinsurance in a qualified jurisdiction, as determined by the commissioner pursuant to par. (c) of this subsection. If a certified reinsurer’s domiciliary jurisdiction ceases to be a qualified jurisdiction, the commissioner has the discretion to suspend the reinsurer’s certification indefinitely, in lieu of revocation.
2. The assuming insurer shall maintain minimum capital and surplus, or its equivalent, of not less than $250,000,000. This requirement may also be satisfied by a group 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. For certified reinsurers not domiciled in the U.S., minimum capital and surplus shall be determined on a U.S. GAAP basis.
3. The assuming insurer shall apply for certification and maintain current financial strength rating from two or more approved rating agencies. Approved rating agencies include Fitch Investor Service, Inc., Standard & Poor’s Corporation, Moody’s Investors Service, Inc., A.M. Best Company. The commissioner shall assign a rating to each certified reinsurer and publish a list of all certified reinsurers and their ratings. The commissioner shall post notice on the office’s website promptly upon receipt of any application of certification including instructions on how members of the public may comment on the application. The commissioner shall issue a written notice to an assuming insurer no sooner than 30 days after receipt of the application indicating whether the assuming insurer has been approved for certification. If approved as a certified reinsurer, the notice shall include the rating assigned by the commissioner in accordance with this subdivision. Each certified reinsurer shall be rated on a legal entity basis, with consideration given to the group rating when the commissioner deems appropriate, except that a group 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 rating process include the following:
a. The certified reinsurer’s financial strength rating from an approved rating agency. The maximum rating that a certified reinsurer may be assigned will correspond to its financial strength rating as outlined in the table that follows. 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 approved rating agencies will result in the loss of eligibility for certification.
Ratings | A.M. Best | S&P | Moody’s | Fitch |
Secure-2 | A+ | AA+, AA, AA- | Aa1, Aa2, Aa3 | AA+, AA, AA- |
Secure-3 | A | A+, A | A1, A2 | A+, A |
Secure-5 | B++, B+ | BBB+, BBB, BBB- | Baa1, Baa2, Baa3 | BBB+, BBB, BBB- |
Vulnerable-6 | Any other lower rating | Any other lower rating | Any other lower rating | Any other lower rating |
b. The applicant’s business practices in dealing with its ceding insurers, including compliance with contractual terms and obligations. If reinsurance obligations to U.S. cedents that are in dispute and that are more than 90 days past due exceed 5% of its reinsurance obligations to U.S. cedents as of the end of its prior financial reporting year, or the applicant’s reinsurance obligations to any of the top 10 U.S. cedents (based on the amount of outstanding reinsurance obligations as of the end of its prior financial reporting year) that are in dispute and are more than 90 days past due exceed 10% of its total reinsurance obligations to that U.S. cedent, then the applicant shall provide notice to the commissioner that reinsurance obligations in dispute and past due exceed the amounts described and a detailed explanation regarding the reasons for the amount of disputed or overdue claims, or both. The applicant shall also provide a description of the applicant’s business practices in dealing with U.S. ceding insurers, and a statement that the applicant commits to comply with all contractual requirements applicable to reinsurance contracts with U.S. ceding insurers. Upon receipt of such notice and explanation, the Commissioner may request additional information concerning the applicant’s claims practices with regard to any or all U.S. ceding insurers.
c. For certified reinsurers domiciled in the U.S., a review of the most recent National Association of Insurance Commissioners Annual Statement Blank. For certified reinsurers not domiciled in the U.S., a review annually of Form CR-F or Form CR-S that are required to be filed under this subsection.
d. The history of the certified reinsurer for prompt payment of claims under reinsurance agreements, based on analysis of ceding insurers, Schedule F reporting of overdue reinsurance recoverables including the proportion of obligations that are more than ninety days past due or are in dispute, with specific emphasis placed on obligations payable to companies that are in administrative supervision or receivership.
e. Regulatory actions against the certified reinsurer.
f. The report of the independent auditor on the financial statements of the insurance enterprise, on the basis described in subpar. (g).
g. For certified reinsurers not domiciled in the U.S., audited financial statements on a U.S. GAAP basis, regulatory filings, and actuarial opinions filed with the non-U.S. jurisdiction supervisor. Audited IFRS basis statements are allowed in lieu of a U.S. GAAP basis statement if they include an audited footnote reconciling equity and net income to a U.S. GAAP basis, or, with the commissioner’s approval, audited IFRS basis statements with reconciliation to U.S. GAAP certified by an officer of the company. Upon initial application for certification, the commissioner shall consider audited financial statements for the previous three years filed with its non-U.S. jurisdiction supervisor.
h. The liquidation priority of obligations to a ceding insurer in the certified reinsurer’s domiciliary jurisdiction in the context of an insolvency proceeding.
i. A certified reinsurer’s participation in any solvent scheme of arrangement, or similar procedure, which involves U.S. ceding insurers. The commissioner shall receive prior notice from a certified reinsurer that proposes participation by the certified reinsurer in a solvent scheme of arrangement.
j. Any other information deemed relevant by the commissioner.
4. The assuming insurer shall agree to submit to the jurisdiction of this state by submitting a properly executed Form CR-1, appointing the commissioner as its agent for service of process in this state, and agreeing to provide security of 100 percent of the assuming insurer’s liabilities attributable to reinsurance ceded by U.S. ceding insurers if its resists enforcement of a final U.S. judgment. The commissioner shall not certify an assuming insurer that is domiciled in a jurisdiction the commissioner has determined does not adequately and promptly enforce final U.S. judgments or arbitration awards.
5. The certified reinsurer must agree to meet applicable filing requirements. All information submitted by certified reinsurers which is not otherwise public information subject to disclosure shall be withheld from public disclosure under s. 601.465, Wis. Stat. The filing requirements are as follows: a. Notification within 10 days of any regulatory actions taken against the certified reinsurer, any changes in the provisions of its domiciliary license or any change in rating by an approved rating agency, including a statement describing changes and the reasons therefore.
b. Annually, Form CR-F or CR-S, as applicable.
c. Annually, the report of the independent auditor on the financial statements of the insurance enterprise, on the basis described in subpar. d.
d. Annually, audited financial statements, regulatory filings, and actuarial opinion as filed with the certified reinsurer’s supervisor. Upon the initial certification, audited financial statements for the last three years filed with the certified reinsurer’s supervisor. Audited financial statements should be provided on a U.S. GAAP basis if available. Audited IFRS basis statements are allowed but must include an audited footnote reconciling equity and net income to a U.S. GAAP basis, or, with permission of the commissioner, audited IFRS statements with reconciliation to U.S. GAAP certified by an office of the company.
e. At least annually, an updated list of all disputed and overdue reinsurance claims which meet the thresholds described in subdivision 3.b. regarding reinsurance assumed from U.S. domestic ceding insurers.
f. Annually, a certification for 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.
g. An annual renewal application for certification by October 1st to be considered for certification for the next calendar year.
h. Any other information deemed relevant by the commissioner.
6. The certified reinsurer shall secure its obligations assumed from U.S. ceding insurers at a level consistent with the rating set by the commissioner. The credit allowed shall be based upon the security held by or on behalf of the ceding insurer in accordance with the rating assigned to the reinsurer by the commissioner and shall be maintained in form that is consistent with s. Ins 52.05 and this section, for multibeneficiary trusts. The amount of security required in order for full credit to be allowed shall correspond with the following requirements: a. Ratings Security Required
Secure -1 0%
Secure -2 10%
Secure -3 20%
Secure -4 50%
Secure – 5 75%
Vulnerable – 6 100%
b. The commissioner shall require the certified reinsurer to post one hundred percent security, for the benefit of the ceding insurer or its estate, upon the entry of an order of rehabilitation, liquidation or conservation against the ceding insurer.
c. In order to facilitate the prompt payment of claims, a certified reinsurer shall not be required to post security for catastrophe recoverables for a period of up to one year from the date of the first instance of a liability reserve entry by the ceding company as a result of a loss from a catastrophic occurrence that is likely to result in significant insured losses as recognized by the commissioner. The one year deferral period is contingent upon the certified reinsurer continuing to pay claims in a timely manner in compliance with its contractual obligations as set forth in the reinsurance agreement under which the claims are ceded. Reinsurance recoverables for only the following lines of business as reported on the National Association of Insurance Commissioners annual financial statement related specifically to the catastrophic occurrence will be included in the deferral:
Line 1:Fire
Line 2: Allied Lines
Line 3: Farmowners multiple peril
Line 4: Homeowners multiple peril
Line 5: Commercial multiple peril
Line 9: Inland Marine
Line 12: Earthquake
Line 21: Auto physical damage
d. Based on an analysis of a certified reinsurer’s history of 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 US ceding insurers. The commissioner shall, at a minimum, increase the security the certified reinsurer is required to post by one rating level if the commissioner finds that more that 15 percent of the certified reinsurers ceding insurance clients have overdue reinsurance recoverables on paid losses of ninety days or more which are not in dispute and which exceed $100,000 for each cedent or the aggregate amount of reinsurance recoverables on paid losses which are not in dispute that are overdue by ninety days or more exceeds $50,000,000.
e. In the case of a downgrade by a rating agency or other disqualifying circumstance, the commissioner shall assign by written notice a new rating to the certified reinsurer pursuant to this section. The certified reinsurer shall meet the security requirements applicable to its new rating for all business assumed as a certified reinsurer by the date specified by the commissioner in the written notice. If the rating of a certified reinsurer is upgraded by the commissioner, the certified reinsurer may meet the applicable security requirements of its new rating for reinsurance agreement entered into after the date of the upgrade. For reinsurance agreements entered into before the date of the upgrade, the certified reinsurer shall post security as required by the certified reinsurers rating before the upgrade.
f. If a certified reinsurer maintains a trust to fully secure its obligations under sub.(4)(c) and chose 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 under sub.(4)(c) and for its obligations under this subsection. As a condition for certification, the reinsurer shall have bound itself by the language of the trust and agreement with the commissioner with principal regulatory oversight of each such trust account, to fund, upon termination of any such trust account, out of the remaining surplus of such trust any deficiency of any other trust account.
g. The minimum trusteed surplus requirements provided in sub.4(c)and (d) are not applicable with respect to a multibeneficiary trust maintained by a certified reinsurer for the purpose of securing obligations incurred under this subsection, except that such trust shall maintain a minimum of trusteed surplus of $10,000,000.
h. If the security held by the certified reinsurer under this subsection 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 if there is a material risk that the certified reinsurer’s obligations will not be paid in full.
