The statutory authority for this rule is specifically Wis. Stat. § 627.23, which establishes that subject to the rules promulgated by the commissioner for the calculation of reserves and surplus, and subject to Wis. Stat. § 627.23 (3), an authorized insurer may cede reinsurance to an unauthorized insurer. Wis. Stat. § 623.02 provides that when promulgating accounting rules, the commissioner shall consider recommendations made by the NAIC. Wis. Stats.§§ 623.03 and 623.04, grant the commissioner authority to promulgate rules specifying how insurers should account for assets and liabilities which would include credit for reinsurance. Wis. Stat. §§ 620.03 and 620.21, provide that the commissioner will promulgate rules for special investments and for the manner in which assets may be counted towards compulsory or security surplus. Additionally, the commissioner has general rule-making authority under Wis. Stat. §§ 601.41 and 227.11 (2) (a). Estimate of amount of time that state employees will spend developing the rule and of other resources necessary to develop the rule:
200 hours and no other resources are necessary to develop the rule.
List with description of all entities that may be affected by the proposed rule:
The update of Wisconsin’s standards to match those in other states will create uniformity. The potential to lower collateral requirements could entice more reinsurers to do business with insurers domiciled in Wisconsin. Ceding insurers domiciled in the state will be subject to new rules and lower collateral requirements.
Domestic insurers who cede liabilities to reciprocal reinsurers would be affected by the proposed rule change. In the event a reciprocal reinsurer has difficulty reimbursing recoverables to the ceding domestic insurer, the lack of a collateral requirement could increase the risk that a ceding domestic insurer will not timely receive all amounts due. Because the reduced collateral requirements consider a reciprocal reinsurer’s financial strength and the strength of a reciprocal reinsurer’s financial regulation, this risk should be mitigated.
Additionally, domestic life insurers may gain competitive options allowing alternative collateral requirements when ceding business in the affected lines of business.
Summary and preliminary comparison with any existing or proposed federal regulation that is intended to address the activities to be regulated by the proposed rule:
Currently, there are no existing federal regulations intended to address this area. The United States has entered into a covered agreement with the European Union and United Kingdom which could preempt regulation of reinsurance if a state does not enact its requirements by September of 2022. There is also a provision where federal preemption could occur if substantial progress has not been made by September of 2021.
Anticipated economic impact of implementing the rule (note if the rule is likely to have a significant economic impact on small businesses):
The anticipated economic impact of implementing the rule is minimal as the proposed rule will primarily change accounting practices. It is possible that reduced collateral could slightly lower the cost of reinsurance ceded to reciprocal reinsurers. The rule would also allow domestic life insurers alternatives for ceding reinsurance in the affected lines of business.
