1. If a national association of insurance commissioners accredited jurisdiction has determined that the conditions set forth in par. (a) have been met, the commissioner has the discretion to defer to that jurisdiction’s determination and add such assuming insurer to the list of assuming insurers to which cessions shall be granted credit in accordance with this subsection. The commissioner may accept financial documentation filed with another national association of insurance commissioners accredited jurisdiction or with the national association of insurance commissioners in satisfaction of the requirements of par. (a).
2. When requesting that the commissioner defer to another national association of insurance commissioners accredited jurisdiction’s determination, an assuming insurer must submit a properly executed Form RJ-1 and additional information as the commissioner may require. Notwithstanding the foregoing, the commissioner will not impose any requirement that conflicts with an applicable covered agreement. A state that has received such a request will notify other states through the national association of insurance commissioners committee process and provide relevant information with respect to the determination of eligibility.
(d) If the commissioner determines that an assuming insurer no longer meets one or more of the requirements under this subsection, the commissioner may revoke or suspend the eligibility of the assuming insurer for recognition under this subsection.
1. While an assuming insurer’s eligibility is suspended, no reinsurance agreement issued, amended, or renewed after the effective date of the suspension qualifies for credit except to the extent that the assuming insurer’s obligations under the contract are secured in accordance with s. Ins 52.04. 2. If an assuming insurer’s eligibility is revoked, no credit for reinsurance may be granted after the effective date of the revocation with respect to any reinsurance agreements entered into by the assuming insurer, including reinsurance agreements entered into prior to the date of revocation, except to the extent that the assuming insurer’s obligations under the contract are secured in a form acceptable to the commissioner and consistent with the provisions of s. Ins 52.04. (e) Before denying statement credit or imposing a requirement to post security with respect to par. (d) or adopting any similar requirement that will have substantially the same regulatory impact as security, the commissioner shall:
1. Communicate with the ceding insurer, the assuming insurer, and the assuming insurer’s supervisory authority that the assuming insurer no longer satisfies one of the conditions listed in par. (a)
2. Provide the assuming insurer with 30 days from the initial communication to submit a plan to remedy the defect, and 90 days from the initial communication to remedy the defect, except in exceptional circumstances in which the commissioner determines that a shorter period is necessary for policyholder and other consumer protection;
3. After the expiration of 90 days or less, as set out in subd. 2, if the commissioner determines that no or insufficient action was taken by the assuming insurer, the commissioner may impose any of the requirements as set out in this subsection; and
4. Provide a written explanation to the assuming insurer of any of the requirements set out in this subsection.
(f) If subject to a legal process of rehabilitation, liquidation, or conservation, as applicable, the ceding insurer, or its representative, may seek and, if determined appropriate by the court in which the proceedings are pending, may obtain an order requiring that the assuming insurer post security for all outstanding liabilities.
(g) Nothing in this subsection shall limit or in any way alter the capacity of parties to a reinsurance agreement to agree on requirements for security or other terms in that reinsurance agreement, except as expressly prohibited by this subchapter or other applicable law or regulation.
(h) Credit may be taken under this subsection only for reinsurance agreements entered into, amended, or renewed on or after the effective date of this subsection . . . . [LRB inserts date], and only with respect to losses incurred and reserves reported on or after the later of (i) the date on which the assuming insurer has met all eligibility requirements pursuant to this subsection, and (ii) the effective date of the new reinsurance agreement, amendment, or renewal.
1. This paragraph does not alter or impair a ceding insurer’s right to take credit for reinsurance, to the extent that credit is not available under this subsection, as long as the reinsurance qualifies for credit under any other applicable provision of this subchapter.
2. Nothing in this subsection shall authorize an assuming insurer to withdraw or reduce the security provided under any reinsurance agreement except as permitted by the terms of the agreement.
3. Nothing in this subsection shall limit, or in any way alter, the capacity of parties to any reinsurance agreement to renegotiate the agreement.
SECTION 14. Ins 52.05 (2) (k) (intro.) is amended to read:
Ins 52.05 (2) (k) (intro.) Notwithstanding other provisions of this chapter 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 chapter 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:
SECTION 15. Ins 52.07 (1) (intro.), and (2) to (5) are followed by a newly created subchapter and are amended to read
52.07 (1) This chapter subchapter applies to determine whether credit may be taken for:
(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 chapter subchapter under sub. (1). Note: Ins 6.73 was repealed eff. 8-1-93.
(3) This chapter 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. (4) Nothing in this chapter 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 chapter subchapter or that it is in sound financial condition and no reinsurer or officer, employe employee or agent of a reinsurer may make such a representation. (5) This chapter 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 chapter subchapter applies to the state life fund. SECTION 16. Ins 52 Subchapter II is created to read:
SUBCHAPTER II
Credit for reinsurance INVOLVING term and universal life reserve financing
Ins 52.20 Purpose, intent, and applicability. In addition to provisions contained at s. Ins 2.80, the following apply to this subchapter. (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.
(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.
52.21 Exemptions. This subchapter does not apply to the situations described below:
(1) Reinsurance of:
(a) Policies that satisfy the criteria for exemption set forth in s. Ins 2.80 (5) (k) or (L) that were issued prior to the effective date of this subchapter . . . . [LRB inserts date]. (b) Portions of policies that satisfy the criteria for exemption set forth in s. Ins 2.80 (5) (j), that were issued prior to the effective date of this subchapter. . . . [LRB inserts date]. (c) Any universal life policy that meets the following requirements:
1. Secondary guarantee period, if any, is five years or less.
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
3. The initial surrender charge is not less than 100% of the first year annualized specified premium for the secondary guarantee period.
(d) Credit life insurance.
(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.
(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.
(2) Reinsurance ceded to an assuming insurer that meets the applicable requirements of s. Ins 52.02 (4); (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: (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
(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 (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: (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. (b) Prepares statutory financial statements in compliance with the national association of insurance commissioners accounting practices and procedures manual
(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
(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 (5) Reinsurance ceded to an assuming insurer that:
(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
1. Licensed in at least 26 states; or
2. Licensed in at least 10 states, and licensed or accredited in a total of at least 35 states.
(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:
(a) The risks are clearly outside of the intent and purpose of this regulation as provided in s. Ins 52.20 (1), (b) The risks are included within the scope of this regulation only as a technicality; and,
(c) The application of this regulation to those risks is not necessary to provide appropriate protection to policyholders.
(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.
52.22 Definitions. In this subchapter, unless the context otherwise requires:
(1) “Actuarial method” means the methodology used to determine the required level of primary security.
(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: (a) Life insurance policies with guaranteed nonlevel gross premiums and/or guaranteed nonlevel benefits, except for flexible premium universal life insurance policies; or,
(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.
(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. (4) “Non-covered policies” means any policy that does not meet the definition of covered policies, including grandfathered policies.
(5) “Other security” means any security acceptable to the commissioner other than security meeting the definition of primary security.
(6) “Primary security” means the following forms of security:
(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 (c) For security held in connection with funds-withheld or modified coinsurance reinsurance treaties, primary security may include any of the following:
1. Commercial loans in good standing of CM3 quality and higher, as assigned by the national association of insurance commissioners;
2. Policy Loans; and
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.
(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.
(8) “Universal life insurance policy” has the meaning provided under s. Ins 2.80 (3) (L). (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. (10) “VM-20” means the requirements for principle-based reserves for life products, including all relevant definitions, from the valuation manual.
52.23 Actuarial method. (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:
(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. (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. (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.
(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:
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;
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;
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
