To amend Ins 52.02 (intro.), 52.02 (2) (g), 52.02 (4) (d), Ins 52.025 (title), 52.025 (1), 52.025 (2), 52.025(3), 52.03 (1), 52.04 (3), 52.05 (2) (i), 52.05 (2) (j), 52.06 (2) (h), 52.06 (2) (i);
To repeal Ins 52.02(3m)
To create Ins 52.02 (2) (h), 52.02 (4) (e) 7., 52.02 (4) (f), 52.02 (4m), 52.065, Form CR-1
Relating to Credit for Reinsurance
The statement of scope for this rule SS: 004-15, was approved by the Governor on January 15, 2015, published in Register No. 710A1, on February 25, 2015, and approved by the Commissioner on March 10, 2015. The proposed rule was approved by the Governor on July 24, 2017, to submit to the legislature, and submitted to the legislature on July 25, 2017.
ANALYSIS PREPARED BY THE OFFICE OF THE COMMISSIONER OF INSURANCE (OCI)
1. Statutes interpreted:
2. Explanation of OCI’s authority to promulgate the proposed rule under these statutes:
The statutory authority for these rules are ss. 227.11 (2) (a) and 601.41 (3), Stats. Sections ss. 620.03, 620.21, 620.22, 623.02, 623.02. 623.04, 623.32 Stats. generally regulate how insurers account for assets and liabilities. Section 627.23, specifically authorized insurers to accept reinsurance and states “[s]ubject to rules promulgated by the commissioner for calculation of its reserves and its surplus, and subject to sub. (3), an authorized insurer may also cede reinsurance to an unauthorized insurer.” The proposed rule regulates how an insurer may take credit for reinsurance to an unauthorized insurer as authorized by s. 627.23, Stat. 3. Related statutes or rules:
None
4. The plain language analysis and summary of the proposed rule:
The proposed rule would modernize Wisconsin’s credit for reinsurance provisions by aligning them with the federal Nonadmitted and Reinsurance Reform act and by adopting the most recent amendments to the National Association of Insurance Commissioners (“NAIC”) model act and model regulation on which Wisconsin’s rules are based. These revisions are also an accreditation requirement by the NAIC.
The NAIC is a standard setting and regulatory support organization created and governed by the chief insurance regulators from the 50 states, the District of Columbia and five U.S. territories. It develops model laws and regulations using a committee structure that includes both members of the committee and interested regulators. The NAIC also provides an accreditation process for state insurance departments. Accreditation of the Office of the Commissioner of Insurance (OCI) by the NAIC helps Wisconsin insurers by ensuring that the OCI has full regulatory authority over its domestic insurers. It accomplishes this by subjecting domestic insurers to financial regulation only by their domestic commissioner if the state is accredited. Because Wisconsin is accredited, Wisconsin insurers are not subject to separate financial regulation in every state in which they do business.
As for the specific changes, chapter Ins 52, Wis. Adm. Code has not been amended since 1995. The regulation as currently written requires that, for licensed insurers to take credit for reinsurance, the assuming reinsurer must place in trust collateral in an amount equal to the reinsurer’s liability to the ceding insurer. The proposed rule would add the concept of a certified reinsurer. Certified reinsurers must meet certain financial requirements, must have a history of complying with the terms of the contracts and timely meet their obligation to pay claims, and must agree to report certain information to the commissioner. In addition, certified reinsurers must be domiciled in a qualified jurisdiction.
A qualified jurisdiction is a jurisdiction that is found by the commissioner to have an effective regulatory supervisory system, a history of cooperation with U.S. regulators, and is one in which U.S. judgments are recognized and enforced. If a reinsurer from a qualified jurisdiction is certified by the commissioner, they may be allowed to post less than 100% collateral on the risk they assume, as is traditionally required. The amount of collateral that is required to be posted by a certified reinsurer depends on the financial strength rating of the reinsurer. The higher the financial rating of the reinsurer, the less collateral is required potentially all the way down to 0%. Reinsurers certified at lower levels would have the same collateral requirements as current law to be credited. By making these revisions, Wisconsin would modernize its reinsurance provisions and these changes would be consistent with changes made or in the process of being made in other states.
5. Summary of and preliminary comparison with any existing or proposed federal regulation that is intended to address the activities to be regulated by the proposed rule:
There are no federal regulations which address these activities.
6. Comparison of similar rules in adjacent states as found by OCI:
Adjacent states have substantially similar provision which may be found at the citations listed below.
Illinois: 215 ILL. COMP. STAT. 5/173.1
Iowa: IOWA CODE §§ 521B.101 to 521B.106
Michigan: MICH. COMP. LAWS §§ 500.1101 to 500.1124
Minnesota: MINN. STAT. §§ 60A.09 to 60A.095
7. A summary of the factual data and analytical methodologies that OCI used in support of the proposed rule and how any related findings support the regulatory approach chosen for the proposed rule:
OCI based this rule on the model law and regulations that were adopted by the NAIC and that have been enacted or will likely be enacted by all 51 jurisdictions in the United States and Puerto Rico.
8. Any analysis and supporting documentation that OCI used in support of OCI’s determination of the rule’s effect on small businesses under s. 227.114: See the attached Private Sector Fiscal Analysis.
9. A description of the Effect on Small Business:
This rule will have little or no effect on small businesses. This rule will reduce the collateral requirements of certain reinsurers with at least $250 million in capital so it would not affect small businesses. There may be some insurers that qualify as small businesses who cede risk to reinsurers but the rule is not expected to have any effect on their ability to take credit for reinsurance ceded and could make it easier to do business with a reinsurer.
10. Agency contact person:
A copy of the full text of the proposed rule changes, analysis and fiscal estimate may be obtained from the Web site at: http://oci.wi.gov/ocirules.htm or by contacting:
Phone: (608) 267-9586
Address: 125 South Webster St – 2nd Floor, Madison WI 53703-3474
Mail: PO Box 7873, Madison, WI 53707-7873
11. Place where comments are to be submitted and deadline for submission:
The deadline for submitting comments is 4:00 p.m. on the -- day after the date for the hearing stated in the Notice of Hearing.
Mailing address:
Richard B. Wicka
Legal Unit - OCI Rule Comment for Rule Ins 52
Office of the Commissioner of Insurance
PO Box 7873
Madison WI 53707-7873
Street address:
Richard B. Wicka
Legal Unit - OCI Rule Comment for Rule Ins 52
Office of the Commissioner of Insurance
125 South Webster St – 2nd Floor
Madison WI 53703-3474
Email address:
Richard B. Wicka
The proposed rule changes are:
SECTION 1. Ins 52.02 (intro.) and Ins 52.02(2)(g) are amended to read:
Ins 52.02 (intro.) Except as provided by s. Ins 52.04 and unless otherwise prohibited by the commissioner, a licensed domestic insurer may take credit for ceded reinsurance as either an asset or a deduction from liability only if the reinsurer at all times complies with one or more of the following: (g) Unless otherwise specifically approved in writing by the commissioner, maintains policyholder surplus in an amount which is not less than $3,000,000 $20,000,000.
SECTION 2. Ins 52.02(2)(h) is created to read:
(h) Demonstrates to the satisfaction of the commissioner that it has adequate financial capacity to meet its reinsurance obligations and is otherwise qualified to assume reinsurance from domestic insurers. An assuming insurer is presumed to meet this requirement as of the time of its application if it maintains a surplus as regards policyholders in an amount not less than $20,000,000 and its accreditation has not been denied by the commissioner within ninety (90) days after submission of its application.
SECTION 3. Ins 52.02(3m) is repealed.
SECTION 4. Ins 52.02(4)(d) is amended to read:
(d) If the reinsurers are a group including incorporated and individual unincorporated underwriters, the reinsurers maintain in a trusteed account funds equal to an amount that is not less than the group's aggregate liabilities attributable to business written in the United States and, in, for reinsurance ceded under reinsurance agreements with an inception, amendment or renewal date on or after January 1, 1993, in an amount not less than the respective underwriters’ several liabilities attributable to business ceded by United States domiciled ceding insurers to any member of the group. For reinsurance ceded under reinsurance agreements with an inception, amendment or renewal date on or before December 31, 1992, the reinsurer shall maintain in a trusteed account funds in amount not less than the respective underwriters’ several insurance and reinsurance liabilities attributable to business written in the United States. In addition, the group maintains a trusteed surplus of which $100,000,000 shall be held jointly for the benefit of United States ceding insurers of any member of the group; the incorporated members of the group are not engaged in any business other than underwriting as a member of the group and are subject to the same level of solvency regulation and control by the group's domiciliary regulator as are the unincorporated members; and the group makes available to the commissioner or equivalent official of the ceding licensed insurer's state of domicile or entry an annual certification of the solvency of each underwriter by the group's domiciliary regulator and its independent public accountants. For a domestic insurer, the certification shall be filed with the commissioner by June 1 unless otherwise approved in writing by the commissioner.
SECTION 5. Ins 52.02(4)(e)7. and Ins 52.02(4)(e)8. are created to read:
7. Notwithstanding any other provision of the trust instrument, if the trust fund is inadequate because it contains an amount less than the amount required by this subsection or if the grantor of the trust has been declared insolvent or placed into receivership, rehabilitation, liquidation or similar proceedings under the laws of its state or country of domicile, the trustee shall comply with an order of the commissioner with regulatory oversight over the trust or with an order of a court of competent jurisdiction directing the trustee to transfer to the commissioner with regulatory oversight over the trust or other designated receiver all of the assets of the trust fund. The assets shall be distributed by and claims shall be filed with and valued by the commissioner with regulatory oversight over the trust in accordance with the laws of the state in which the trust is domiciled applicable to the liquidation of domestic insurance companies. If the commissioner with regulatory oversight over the trust determines the assets of the trust fund or any part thereof are not necessary to satisfy the claims of the U.S. beneficiaries of the trust, the commissioner with regulatory oversight over the trust shall return the assets to the trustee for distribution in accordance with the trust agreement. The grantor shall waive any right otherwise available to it under US law that is inconsistent with this provision.
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.
