Chapter Ins 40

Ins 40.03(9)(e)1. 1. The NAIC liquidity stress test framework includes scope criteria applicable to a specific data year. These scope criteria are reviewed at least annually by the financial stability task force or its successor. Any change to the NAIC liquidity stress test framework or to the data year for which the scope criteria are to be measured shall be effective on January 1 of the year following the calendar year when such changes are adopted. All of the following apply with regard to the liquidity stress test:

Ins 40.03(9)(e)1.a. a. Insurers meeting at least one threshold of the scope criteria are considered scoped into the NAIC liquidity stress test framework for the specified data year unless the lead state commissioner, in consultation with the NAIC financial stability task force or its successor, determines the insurer should not be scoped into the framework for that data year.

Ins 40.03(9)(e)1.b. b. Insurers that do not trigger at least one threshold of the scope criteria are considered scoped out of the NAIC liquidity stress test framework for the specified data year, unless the lead state commissioner, in consultation with the NAIC financial stability task force or its successor, determines the insurer should be scoped into the framework for that data year.

Ins 40.03(9)(e)1.c. c. Regulators wish to avoid having insurers scoped in and out of the NAIC liquidity stress test framework on a frequent basis. The lead state commissioner, in consultation with the NAIC financial stability task force or its successor, will assess this concern as part of the determination for an insurer.

Ins 40.03(9)(e)2. 2. The performance of, and filing of the results from, a specific year’s liquidity stress test shall comply with the NAIC liquidity stress test framework’s instructions and reporting templates for that year and any lead state commissioner determinations, in conjunction with the NAIC financial stability task force or its successor, provided within the framework.

Ins 40.03(9)(e)3. 3. For purposes of the information reported and provided to the lead state commissioner pursuant to par. (e), the information is confidential under s. 617.13 (2), Stats. The lead state commissioner shall maintain the confidentiality of the liquidity stress test results and supporting disclosures and any liquidity stress test information received from an insurance holding company supervised by the Federal Reserve Board and non-U.S. group wide supervisors in accordance with s. 617.13 (2), Stats.

Ins 40.03(9)(f) (f) Prohibition from publication of results. The group capital calculation and resulting group capital ratio required under par. (d) and the liquidity stress test along with its results and supporting disclosures required under par. (e) are regulatory tools for assessing group risks and capital adequacy and group liquidity risks, respectively, and are not intended as a means to rank insurers or insurance holding company systems generally. Therefore, except as otherwise permitted by law, the making, publishing, disseminating, circulating or placing before the public, or causing directly or indirectly to be made, published, disseminated, circulated or placed before the public in a newspaper, magazine or other publication, or in the form of a notice, circular, pamphlet, letter or poster, or over any radio or television station or any electronic means of communication available to the public, or in any other way as an advertisement, announcement or statement containing a representation or statement with regard to the group capital calculation, group capital ratio, the liquidity stress test results, or supporting disclosures for the liquidity stress test of any insurer or any insurer group, or of any component derived in the calculation by any insurer, broker, or other person engaged in any manner in the insurance business would be misleading and is therefore prohibited; provided, however, that if any materially false statement with respect to the group capital calculation, resulting group capital ratio, an inappropriate comparison of any amount to an insurer’s or insurance group’s group capital calculation or resulting group capital ratio, liquidity stress test result, supporting disclosures for the liquidity stress test, or an inappropriate comparison of any amount to an insurer’s or insurance group’s liquidity stress test result or supporting disclosures is published in any written publication and the insurer is able to demonstrate to the commissioner with substantial proof the falsity of such statement or its inappropriateness, then the insurer may publish announcements in a written publication if the sole purpose of the announcement is to rebut the materially false statement.

Ins 40.03 History History: Cr. Register, July, 1993, No. 451, eff. 8-1-93; CR 14-071: r. and recr. Register August 2015 No. 716, eff. 9-1-15; s. 35.17 correction in (9) (a) Register August 2015 No. 716; CR 21-106: am. (5), (9) (title), (a), (b), cr. (9) (c) (title), (d) to (f) Register July 2022 No. 799, eff. 8-1-22.

Ins 40.04 Ins 40.04 Standards for transactions within an insurance holding company system.

Ins 40.04(1) (1) Transactions within an insurance holding company system. An insurer, or affiliate of an insurer, which is required to register under s. Ins 40.03 may not enter directly or indirectly into a transaction between the insurer and the affiliate unless the insurer and affiliate:

Ins 40.04(1)(a) (a) Comply with s. 617.21 (1), Stats., and sub. (6);

Ins 40.04(1)(b) (b) Expenses incurred and payment received for the transaction are allocated to the insurer in conformity with customary insurance accounting practices consistently applied; and

Ins 40.04(1)(c) (c) The books, accounts and records of each party to the transaction clearly and accurately disclose the nature and details of the transaction including the accounting information which is necessary to support the reasonableness of the charges or fees to the respective parties.

Ins 40.04(2) (2) Transactions required to be reported and subject to disapproval. A domestic insurer, and a person attempting to acquire control of a domestic insurer, or an affiliate of a domestic insurer, which directly or indirectly is involved in or benefits from, a transaction, shall report, under s. 617.21 (2), Stats., each of the following transactions, including amendments or modifications of transactions previously filed pursuant to this section, which are subject to any materiality standards contained in pars. (a) to (f), to the commissioner in writing at least 30 days before the domestic insurer enters into the transaction, unless the commissioner in writing approves a shorter period. The notice for amendments or modifications shall include the reasons for the change and the financial impact on the domestic insurer. Informal notice shall be reported to the commissioner within 30 days after termination of a previously filed agreement, if termination is other than according to the terms of the agreement as filed, and the commissioner shall determine the type of filing required, if any. Transactions required to be reported and subject to disapproval include each of the following:

Ins 40.04(2)(a) (a) Sales, purchases, exchanges, loans, extensions of credit, guarantees, or investments involving the domestic insurer and an affiliate or a person attempting to acquire control of the domestic insurer if the transactions are equal to or exceed the lesser of 2% of the domestic insurer’s admitted assets or 10% of policyholder surplus as of the 31st day of December of the immediately preceding calendar year. All guarantees which are unlimited or not quantifiable as to amount are subject to the reporting requirements of this subsection;

Ins 40.04(2)(b) (b) Loans or extensions of credit or guarantees to any person who is not an affiliate, where the domestic insurer makes loans, extensions of credit or guarantees with the agreement or understanding that the proceeds of the transactions or benefit of the guarantees, in whole or in significant part, directly or indirectly, are to be used to make loans or extensions of credit to, to purchase assets of, or to make investments in, any affiliate of the domestic insurer making the loans, extensions of credit, or guarantee, or any person attempting to acquire control of the insurer, if the transactions are equal to or exceed the lesser of 2% of the domestic insurer’s admitted assets or 10% of policyholder surplus as of the 31st day of December of the immediately preceding calendar year. All guarantees which are unlimited or not quantifiable as to amount are subject to the reporting requirements of this subsection;

Ins 40.04(2)(c) (c) Reinsurance agreements, including reinsurance pooling arrangements, or modifications to reinsurance agreements, which involve a domestic insurer and either an affiliate or a person attempting to acquire control of the domestic insurer in which the reinsurance premium, the projected reinsurance premium or a change in the insurer’s liabilities in any of the next three years equals or exceeds 5% of the insurer’s policyholder surplus, as of the 31st day of December of the immediately preceding calendar year, including, but not limited to, those agreements which may require as consideration the transfer of assets from an insurer to a nonaffiliate, if an agreement or understanding exists between the insurer and nonaffiliate that any portion of the assets will be transferred to one or more affiliates of the insurer;

Ins 40.04(2)(d) (d) All management agreements, exclusive agency agreements, service contracts, tax allocation agreements, or cost-sharing arrangements which involve a domestic insurer and either an affiliate or a person attempting to acquire control of the domestic insurer. All agreements under this paragraph entered into after the effective date of this rule shall, at a minimum and as applicable, contain all of the following:

Ins 40.04(2)(d)1. 1. Identify the person providing services and the nature of such services.

Ins 40.04(2)(d)2. 2. Set forth the methods to allocate costs.

Ins 40.04(2)(d)3. 3. Require timely settlement, not less frequently than on a quarterly basis, and compliance with the requirements in the Accounting Practices and Procedures Manual.

Ins 40.04(2)(d)4. 4. Prohibit advancement of funds by the insurer to the affiliate except to pay for services defined in the agreement. This subdivision does not prohibit loans or capital transactions that involve a domestic insurer and an affiliate that are otherwise permitted by statute or rule.

Ins 40.04(2)(d)5. 5. State that the insurer will maintain oversight for functions provided to the insurer by the affiliate and that the insurer will monitor services annually for quality assurance.

Ins 40.04(2)(d)6. 6. Define books and records of the insurer to include all books and records developed or maintained under or related to the agreement.

Ins 40.04(2)(d)7. 7. Specify that all books and records of the insurer are and remain the property of the insurer and are subject to control of the insurer.

Ins 40.04(2)(d)8. 8. State that all funds and invested assets of the insurer are the exclusive property of the insurer, held for the benefit of the insurer and are subject to the control of the insurer.

Ins 40.04(2)(d)9. 9. Include standards for termination of the agreement with and without cause.

Ins 40.04(2)(d)10. 10. Include provisions for indemnification of the insurer in the event of gross negligence or willful misconduct on the part of the affiliate providing the services.

Ins 40.04(2)(d)11. 11. Specify that, if the insurer is placed in delinquency proceedings or seized by the commissioner under ch. 645., Stats.:

Ins 40.04(2)(d)11.a. a. All of the rights of the insurer under the agreement extend to the receiver or commissioner.

Ins 40.04(2)(d)11.b. b. All books and records will immediately be made available to the receiver or the commissioner, and shall be turned over to the receiver or commissioner immediately upon the receiver or the commissioner’s request.

Ins 40.04(2)(d)12. 12. Specify that the affiliate has no automatic right to terminate the agreement if the insurer is placed in receivership pursuant to ch. 645, Stats.

Ins 40.04(2)(d)13. 13. Specify that the affiliate will continue to maintain any systems, programs, or other infrastructure notwithstanding a delinquency proceeding or seizure by the commissioner under chapter 645, Stats., and will make them available to the receiver, for so long as the affiliate continues to receive timely payment for services.

Ins 40.04(2)(e) (e) A transaction not in the ordinary course of business which involves a domestic insurer and either an affiliate of, or a person attempting to acquire control of, a domestic insurer and which involves or exposes to risk an amount equal to or exceeding the lesser of 2% of the domestic insurer’s admitted assets or 10% of policyholder surplus as of the 31st day of December of the immediately preceding calendar year; and

Ins 40.04(2)(f) (f) Any material transactions which the commissioner requires to be reported by order.

Ins 40.04(3) (3) Illegal transactions not authorized. This section does not authorize or permit any transaction which would be otherwise contrary to law.

Ins 40.04(4) (4) Group or series of related transactions. For the purpose of applying sub. (2), a group or series of related transactions shall be treated as if they are a single transaction.

Ins 40.04(5) (5) Subterfuge prohibited. A domestic insurer, person attempting to acquire control of a domestic insurer, person having control of a domestic insurer or affiliate of a domestic insurer may not enter into transactions which are part of a group or series of transactions if the purpose of those separate transactions is to attempt to avoid a threshold amount under this chapter.

Ins 40.04(6) (6) Disapproval. Transactions subject to reporting under sub. (2) may be disapproved by the commissioner under s. 617.21 (3), Stats. No person may enter into or assent to a transaction that is disapproved by the commissioner or which is subject to reporting under sub. (2) but not reported.

Ins 40.04(7) (7) Insurer may report on behalf of affiliate or person attempting to acquire control. A domestic insurer may file a report under sub. (2) on behalf of its affiliate or of the person attempting to acquire control of the insurer. Lack of knowledge that an insurer has not reported on behalf of the affiliate or person or that the report is incomplete or inaccurate is not a defense for the affiliate or person attempting to acquire control of the insurer.

Ins 40.04 History History: Cr. Register, July, 1993, No. 451, eff. 8-1-93; CR 14-071: r. and recr. Register August 2015 No. 716, eff. 9-1-15; s. 35.17 correction in (2) Register August 2015 No. 716.

Ins 40.05 Ins 40.05 Privileged information. The information required to be filed with the commissioner under to ss. Ins 40.02, 40.025, 40.07, and 40.08, is required pursuant to s. 601.42, Stats., and is subject to s. 601.465, Stats.

Ins 40.05 History History: Cr. Register, July, 1993, No. 451, eff. 8-1-93; CR 14-071: am. Register August 2015 No. 716, eff. 9-1-15; CR 19-013: am. Register April 2020 No. 772, eff. 5-1-20.

Ins 40.07 Ins 40.07 Designation of the group-wide supervisor of internationally active insurance groups.

Ins 40.07(1) (1) 

Ins 40.07(1)(a) (a) The commissioner is authorized to act as the group-wide supervisor for any internationally active insurance group in accordance with this section. The commissioner may acknowledge that another regulatory official is a more appropriate group-wide supervisor when the internationally active insurance group meets any of the following requirements:

Ins 40.07(1)(a)1. 1. Does not have substantial insurance operations in the United States.

Ins 40.07(1)(a)2. 2. Has substantial insurance operations in the United States, but not in Wisconsin.

Ins 40.07(1)(a)3. 3. Has substantial insurance operations in the United States and Wisconsin, but the commissioner has determined pursuant to the factors set forth in sub. (2) and s. Ins 40.08 (2), that another regulatory official is the appropriate group-wide supervisor.

Ins 40.07(1)(b) (b) An insurance holding company system that does not qualify as an internationally active insurance group may request that the commissioner either act as the group-wide supervisor or acknowledge another regulatory official as the group-wide supervisor.

Ins 40.07(2) (2) When determining the appropriate group-wide supervisor, the commissioner shall consider the following factors, in cooperation with other state, federal and international regulatory officials involved with supervision of the internationally active insurance group and its members, and in consultation with the internationally active insurance group:

Ins 40.07(2)(a) (a) The place of domicile of the insurers within the internationally active insurance group that hold the largest share of the group’s written premiums, assets or liabilities.

Ins 40.07(2)(b) (b) The place of domicile of the top-tiered insurer in the insurance holding company system of the internationally active insurance group.

Ins 40.07(2)(c) (c) The location of the executive offices or largest operational offices of the internationally active insurance group.

Ins 40.07(2)(d) (d) Whether the regulatory system of a regulatory official who is acting, or is interested in acting, as the group-wide supervisor is substantially similar to the laws of Wisconsin or is sufficient for group-wide supervision, enterprise risk analysis, and cooperation with other regulatory officials.

Ins 40.07(2)(e) (e) Whether another regulatory official acting or seeking to act as the group-wide supervisor provides the commissioner with reasonably reciprocal recognition and cooperation.

Ins 40.07(3) (3) In the event of a material change in the internationally active insurance group the commissioner shall make a determination to act as the group-wide supervisor or acknowledge another regulatory official as the appropriate group-wide supervisor for the internationally active insurance group pursuant to subs. (1) and (2).

Ins 40.07(4) (4) The commissioner is authorized to collect from any insurer registered under s. Ins 40.03 all information necessary to determine whether the commissioner may act as the group-wide supervisor of an internationally active insurance group or acknowledge another regulatory official to act as the group-wide supervisor. Prior to issuing a determination that an internationally active insurance group is subject to group-wide supervision by the commissioner, the commissioner shall notify the insurer registered as required by s. Ins 40.03, and the ultimate controlling person within the internationally active insurance group. The internationally active insurance group shall have not less than 30 days to provide the commissioner with additional information pertinent to the pending determination. The commissioner shall publish on its Internet website the identity of internationally active insurance groups that the commissioner has determined are subject to group-wide supervision by the commissioner.

Ins 40.07 History History: CR 19-013: cr. Register April 2020 No. 772, eff. 5-1-20; correction in (4) made under s. 35.17, Stats., Register April 2020 No. 772.

Ins 40.08 Ins 40.08 Duties of the group-wide supervisor.

Ins 40.08(1) (1) If the commissioner is the group-wide supervisor for an internationally active insurance group, the commissioner is authorized to engage in any of the following group-wide supervision activities:

Ins 40.08(1)(a) (a) Assess the enterprise risks within the internationally active insurance group to ensure the following:

Ins 40.08(1)(a)1. 1. The material financial condition and liquidity risks to the members of the internationally active insurance group that are engaged in the business of insurance are identified by management.

Ins 40.08(1)(a)2. 2. Reasonable and effective risk mitigation measures are in place.

Ins 40.08(1)(b) (b) Request information necessary and appropriate to assess enterprise risk from any member of an internationally active insurance group subject to the commissioner’s supervision, including information about the members of the internationally active insurance group regarding the following:

Ins 40.08(1)(b)1. 1. Governance, risk assessment and management.

Ins 40.08(1)(b)2. 2. Capital adequacy.

Ins 40.08(1)(b)3. 3. Material intercompany transactions.

Ins 40.08(1)(c) (c) Coordinate and compel, through the authority of the regulatory officials of the jurisdictions where members of the internationally active insurance group are domiciled, the development and implementation of reasonable measures designed to ensure that the internationally active insurance group is able to timely recognize and mitigate enterprise risks to members of such internationally active insurance group that are engaged in the business of insurance.

Ins 40.08(1)(d) (d) Communicate with other state, federal and international regulatory agencies for members within the internationally active insurance group and share relevant information subject to the confidentiality provisions in s. Ins 40.05, and through supervisory colleges under s. 617.215, Stats.

Ins 40.08(1)(e) (e) Enter into agreements with, or obtain documentation from, any insurer registered under s. Ins 40.03, any member of the internationally active insurance group, and any other state, federal and international regulatory agencies for members of the internationally active insurance group, providing the basis for or otherwise clarifying the commissioner’s role as group-wide supervisor, including provisions for resolving disputes with other regulatory officials. Such agreements or documentation shall not serve as evidence in any proceeding that any insurer or person within an insurance holding company system not domiciled or incorporated in Wisconsin is doing business in Wisconsin or is otherwise subject to the jurisdiction of Wisconsin.

Ins 40.08(1)(f) (f) Other group-wide supervision activities, consistent with the authorities and purposes enumerated above, as considered necessary by the commissioner.

Ins 40.08(2) (2) If the commissioner acknowledges that another regulatory official from a jurisdiction that is not accredited by the NAIC is the group-wide supervisor, the commissioner is authorized to reasonably cooperate, including through supervisory colleges, with group-wide supervision undertaken by the group-wide supervisor, when the following provisions are met:

Ins 40.08(2)(a) (a) The commissioner’s cooperation is in compliance with the laws of Wisconsin.

Ins 40.08(2)(b) (b) The regulatory official acknowledged as the group-wide supervisor also recognizes and cooperates with the commissioner’s activities as a group-wide supervisor for other internationally active insurance groups where applicable. Where such recognition and cooperation is not reasonably reciprocal, the commissioner is authorized to refuse recognition and cooperation.

Ins 40.08(3) (3) The commissioner is authorized to enter into agreements with, or obtain documentation from, any insurer registered as required by s. Ins 40.03, any affiliate of the insurer, and other state, federal and international regulatory agencies for members of the internationally active insurance group that provide the basis for or otherwise clarify a regulatory official’s role as group-wide supervisor.

Ins 40.08 History History: CR 19-013: cr., Register April 2020 No. 772, eff. 5-1-20.

Ins 40.09 Ins 40.09 Insurer’s duty to pay reasonable expenses. An insurer registered under s. Ins 40.03 that is also subject to ss. Ins 40.07 to 40.08 shall pay, pursuant to s. Ins 16.01 (6) (d), the reasonable expenses of the commissioner’s participation in the administration of the internationally active group, including any of the following:

Ins 40.09(1) (1) The commissioner’s expenses from the engagement of attorneys, actuaries and any other professionals.

Ins 40.09(2) (2) The commissioner’s reasonable travel expenses.

Ins 40.09 History History: CR 19-013: cr. Register April 2020 No. 772, eff. 5-1-20; renum. (1) to Ins 40.09 (intro.) under s. 13.92 (4) (b) 1., Stats., and s. 35.17 correction in (intro.) made under s. 35.17, Stats., Register April 2020 No. 772.

subch. II of ch. Ins 40 Subchapter II—Insurance Holding Company Systems—Reporting Forms

Ins 40.11 Ins 40.11 Instructions.

Ins 40.11(1) (1) General. Forms A, B, C, D, E, and F contained in the appendix to this chapter are intended to be guides in the preparation of the statements required by subch. I of this chapter. They are not intended to be blank forms which are to be filled in. The statements filed shall contain the numbers and captions of all items, but the text of the items may be omitted provided the answers are prepared in such a manner as to indicate clearly the scope and coverage of the items. All instructions, whether appearing under the items of the form or elsewhere therein, are to be omitted. Unless expressly provided otherwise, if any item is inapplicable or the answer is in the negative, an appropriate statement to that effect shall be made.

Ins 40.11(2) (2) Filing format and procedure.

Ins 40.11(2)(a) (a) One complete copy of each statement, including exhibits and all other papers and documents filed as a part of the statement, shall be filed with the commissioner. At least one of the copies shall be manually signed in the manner prescribed on the form. Unsigned copies shall be conformed. If the signature of any person is affixed pursuant to a power of attorney or other similar authority, a copy of the power of attorney or other authority shall also be filed with the statement.

Ins 40.11(2)(b) (b) Statements shall be prepared on paper 8 1/2x 11 in size and preferably bound at the top or the top left-hand corner. Exhibits and financial statements, unless specifically prepared for the filing, may be submitted in their original size. All copies of any statement, financial statements or exhibits shall be clear, easily readable and suitable for photocopying. Debits in credit categories and credits in debit categories shall be designated so as to be clearly distinguishable as such on photocopies. Statements shall be in the English language and monetary values shall be stated in United States currency. If any exhibit or other paper or document filed with the statement is in a foreign language, it shall be accompanied by a translation into the English language and any monetary value shown in a foreign currency shall be converted into United States currency.

Ins 40.11 History History: Cr. Register, July, 1993, No. 451, eff. 8-1-93; CR 14-071: am. (1), (2) (a) Register August 2015 No. 716, eff. 9-1-15.

Ins 40.12 Ins 40.12 Forms—incorporation by reference, summaries and omissions.