Chapter Ins 52

Register June 1997 No. 498

Chapter Ins 52

CREDIT FOR REINSURANCE

Subchapter I — Requirements for Credit for Reinsurance

Ins 52.005   Purpose and intent.

Ins 52.01   Definitions.

Ins 52.02   Credit allowed a licensed ceding insurer.

Ins 52.025   Revocation of accreditation or certification.

Ins 52.03   Insolvency clause and jurisdiction; financial reinsurance disallowed.

Ins 52.04   Reduction from liability for reinsurance ceded by a licensed insurer to an assuming insurer.

Ins 52.05   Trust agreements qualifying for security.

Ins 52.06   Letters of credit.

Ins 52.065   Concentration Risk.

Ins 52.07   Applicability.

Subchapter II — Credit for Reinsurance Involving Term and Universal Life Reserve Financing

Ins 52.20   Purpose, intent, and applicability.

Ins 52.21   Exemptions.

Ins 52.22   Definitions.

Ins 52.23   Actuarial method.

Ins 52.24   Requirements applicable to covered policies to obtain credit for reinsurance: opportunity for remediation.

Ins 52.25   Severability.

Ins 52.26   Prohibition against avoidance.

subch. I of ch. Ins 52 Subchapter I — Requirements for Credit for Reinsurance

Ins 52.005 Ins 52.005 Purpose and intent. The purpose of this subchapter is to protect the interest of insureds, claimants, ceding insurers, assuming insurers, and the public generally. The intent is to ensure adequate regulation of insurers and reinsurers, and adequate protection for those to whom they owe obligations. In furtherance of this interest, the commissioner hereby provides that upon the insolvency of a non-United States insurer or reinsurer that provides security to fund its United States obligations in accordance with this subchapter, the assets representing the security shall be maintained in the United States and claims shall be filed with and valued by the state insurance commissioner with regulatory oversight, and the assets shall be distributed, in accordance with the insurance laws of the state in which the trust is domiciled that are applicable to the liquidation of domestic United States insurance companies. This subchapter sets forth rules and procedural requirements that the commissioner deems necessary to carry out the provisions of this subchapter. The actions and information required by this subchapter are declared to be necessary and appropriate in the public interest and for the protections of the ceding insurers in this state. The commissioner further declares that the matters contained in this subchapter are fundamental to the business of insurance in accordance with 15 USC 1011 to 1012.

Ins 52.005 History History: CR 21-066: cr. Register May 2022 No. 797, eff. 6-1-22; correction made under s. 35.17, Stats., Register May 2022 No. 797.

Ins 52.01 Ins 52.01 Definitions. In this subchapter, unless the context otherwise requires:

Ins 52.01(1g) (1g) “Covered agreement” means an agreement entered into pursuant to Dodd-Frank Wall Street Reform and Consumer Protection Act, 31 USC 313 and 314, that is currently in effect or in a period of provisional application and addresses the elimination, under specified conditions, of collateral requirements as a condition for entering into any reinsurance agreement with a ceding insurer domiciled in this state or for allowing the ceding insurer to recognize credit for reinsurance.

Ins 52.01(1m) (1m) “Policyholder surplus” means capital and surplus.

Ins 52.01(2) (2) “Qualified United States financial institution” means an institution that:

Ins 52.01(2)(a) (a) Is organized or, in the case of a United States office of a foreign banking organization, licensed, under the laws of the United States or any state;

Ins 52.01(2)(b) (b) Is regulated, supervised and examined by United States federal or state authorities having regulatory authority over banks and trust companies; and

Ins 52.01(2)(c) (c) Has been determined by either the commissioner or equivalent official of the ceding insurer’s state of domicile, or the securities valuation office of the national association of insurance commissioners, to meet such standards of financial condition and standing as are considered necessary and appropriate to regulate the quality of financial institutions whose letters of credit will be acceptable to the commissioner or equivalent official.

Ins 52.01(3) (3) “Qualified fiduciary United States financial institution” means an institution that:

Ins 52.01(3)(a) (a) Is organized or, in the case of a United States branch or agency office of a foreign banking organization, licensed, under the laws of the United States or any state; and

Ins 52.01(3)(b) (b) Is regulated, supervised and examined by United States federal or state authorities having regulatory authority over banks and trust companies.

Ins 52.01(4) (4) “Reciprocal jurisdiction” is a jurisdiction, as designated by the commissioner pursuant to s. Ins 52.02 (4r) (b), of this subchapter, that meets one of the following conditions:

Ins 52.01(4)(a) (a) A non-United States jurisdiction that is subject to an in-force covered agreement with the United States, each within its legal authority, or, in the case of a covered agreement between the United States and European Union, is a member state of the European Union.

Ins 52.01(4)(b) (b) A United States jurisdiction that meets the requirements for accreditation under the financial standards and accreditation program of the national association of insurance commissioners.

Ins 52.01(4)(c) (c) A qualified jurisdiction, as determined by the commissioner pursuant to s. Ins 52.02 (4m) (c), and which is not otherwise described in par. (a) or (b) of this subsection, consistent with the terms and conditions of in-force covered agreements, as specified by the commissioner, and which meets all of the following additional requirements:

Ins 52.01(4)(c)1. 1. Provides that an insurer which has its head office or is domiciled in such qualified jurisdiction shall receive credit for reinsurance ceded to a United States-domiciled assuming insurer in the same manner as credit for reinsurance is received for reinsurance assumed by insurers domiciled in such qualified jurisdiction.

Ins 52.01(4)(c)2. 2. Does not require a United States-domiciled assuming insurer to establish or maintain a local presence as a condition for entering into a reinsurance agreement with any ceding insurer subject to regulation by the non-United States jurisdiction or as a condition to allow the ceding insurer to recognize credit for such reinsurance.

Ins 52.01(4)(c)3. 3. Recognizes the United States state regulatory approach to group supervision and group capital, by providing written confirmation by a competent regulatory authority, in such qualified jurisdiction, that insurers and insurance groups that are domiciled or maintain their headquarters in this state or another jurisdiction accredited by the national association of insurance commissioners shall be subject only to worldwide prudential insurance group supervision including worldwide group governance, solvency and capital, and reporting, as applicable, by the commissioner or the commissioner of the domiciliary state and will not be subject to group supervision at the level of the worldwide parent undertaking of the insurance or reinsurance group by the qualified jurisdiction.

Ins 52.01(4)(c)4. 4. Provides written confirmation by a competent regulatory authority in such qualified jurisdiction that information regarding insurers and their parent, subsidiary, or affiliated entities, if applicable, shall be provided to the commissioner in accordance with a memorandum of understanding or similar document between the commissioner and such qualified jurisdiction, including but not limited to the International Association of Insurance Supervisors Multilateral Memorandum of Understanding or other multilateral memoranda of understanding coordinated by the national association of insurance commissioners.

Ins 52.01(5) (5) “Solvent scheme of arrangement” means a foreign or alien statutory or regulatory compromise procedure subject to requisite majority creditor approval and judicial sanction in the assuming insurer’s home jurisdiction either to finally commute liabilities of duly noticed classed members or creditors of a solvent debtor, or to reorganize or restructure the debts and obligations of a solvent debtor on a final basis, and which may be subject to judicial recognition and enforcement of the arrangement by a governing authority outside the ceding insurer’s home jurisdiction.

Ins 52.01 History History: Cr. Register, July, 1993, No. 451, eff. 8-1-93; CR 21-066: am. (intro.), renum. (1) to (1m), cr. (1g), (4), (5) Register May 2022 No. 797, eff. 6-1-22; correction in (4) (c) made under s. 35.17, Stats., Register May 2022 No. 797.

Ins 52.02 Ins 52.02 Credit allowed a licensed ceding insurer. Except as provided by s. Ins 52.04 and unless otherwise prohibited by the commissioner with any such prohibition not to be in contravention of an applicable covered agreement, a 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:

Ins 52.02(1) (1) The reinsurer is licensed as an insurer in this state.

Ins 52.02(2) (2) The reinsurer is accredited in this state by the commissioner at the time credit is claimed or taken and the reinsurer:

Ins 52.02(2)(a) (a) Files with the commissioner evidence of its submission to this state’s jurisdiction;

Ins 52.02(2)(b) (b) Submits to this state’s authority to examine its books and records;

Ins 52.02(2)(c) (c) Files a properly executed Form AR-1 as evidence of its submission to this state’s jurisdiction and to this state’s authority to examine its books and records;

Ins 52.02 Note Note: Form AR-1 is published as Chapter Ins 52 Appendix A.

Ins 52.02(2)(d) (d) Is licensed to transact insurance or reinsurance in at least one state, or in the case of a United States branch of an alien assuming insurer is entered through and licensed to transact insurance or reinsurance in at least one state;

Ins 52.02(2)(e) (e) Files with the commissioner a certified copy of a letter or a certificate of authority or of compliance as evidence that it is licensed to transact insurance or reinsurance, or, in the case of a United States branch of an alien assuming insurer, is entered through and licensed to transact insurance or reinsurance, as required under par. (d);

Ins 52.02(2)(f) (f) Files annually with the commissioner by March 1, or a later date approved in writing by the commissioner, a copy of its annual statement filed with the insurance department of its state of domicile or, in the case of an alien assuming insurer, with the state through which it is entered and in which it is licensed to transact insurance or reinsurance, and a copy of its most recent audited financial statement annually by June 1; and

Ins 52.02(2)(g) (g) Unless otherwise specifically approved in writing by the commissioner, maintains policyholder surplus in an amount which is not less than $20,000,000.

Ins 52.02(2)(h) (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 90 days after submission of its application.

Ins 52.02(3) (3) The reinsurer is domiciled and licensed in, or in the case of a United States branch of an alien assuming insurer is entered through, a state which employs standards regarding credit for reinsurance which the commissioner determines equal or exceed the standards applicable under this subchapter and the reinsurer or United States branch of an alien reinsurer:

Ins 52.02(3)(a) (a) Submits to the authority of this state to examine its books and records;

Ins 52.02(3)(b) (b) Files a form AR-1 with the commissioner to comply with par. (a); and

Ins 52.02 Note Note: Form AR-1 is published as Chapter Ins 52 Appendix A.

Ins 52.02(3)(c) (c) Complies with one or more of the following:

Ins 52.02(3)(c)1. 1. The reinsurer or United States branch assumes the reinsurance under pooling arrangements among insurers in the same holding company system; or

Ins 52.02(3)(c)2. 2. The reinsurer maintains policyholder surplus in an amount not less than $20,000,000.

Ins 52.02(4) (4) The reinsurer complies with all of the following:

Ins 52.02(4)(a) (a) The reinsurer maintains a trust fund in a qualified fiduciary United States financial institution for the payment of the valid claims of its United States policyholders and ceding insurers, their assigns and successors in interest.

Ins 52.02(4)(b) (b) The reinsurer reports annually, by March 1, or a later date which the commissioner approves in writing, to the commissioner information substantially the same as that required to be reported on the National Association of Insurance Commissioners Annual Statement form by licensed insurers to enable the commissioner to determine the sufficiency of the trust fund.

Ins 52.02(4)(c) (c) The reinsurer maintains in a trust account funds equal to an amount that is not less than the assuming insurer’s liabilities attributable to business written in the United States and, in addition, the reinsurer maintains a trusteed surplus of not less than $20,000,000.

Ins 52.02(4)(d) (d) If the reinsurers are a group including incorporated and individual unincorporated underwriters, the reinsurers maintain in a trusteed account funds, 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.

Ins 52.02(4)(e) (e) The trust is established in a form approved by the commissioner or equivalent official of the ceding licensed insurer’s state of domicile or entry. The trust instrument shall provide, and the trustees comply with, all of the following:

Ins 52.02(4)(e)1. 1. Contested claims shall be valid and enforceable out of funds in the trust if the claims remain unsatisfied 30 days after the entry of a final order of any court of competent jurisdiction in the United States.

Ins 52.02(4)(e)2. 2. Legal title to the assets of the trust is vested in the trustee of the trust for the benefit of the grantor’s United States policyholders and ceding insurers, their assigns and successors in interest.

Ins 52.02(4)(e)3. 3. The trust and the assuming insurer are subject to examination as determined by the commissioner.

Ins 52.02(4)(e)4. 4. The trust shall remain in effect for as long as the assuming insurer, or any member or former member of a group of insurers, has outstanding obligations due under the reinsurance agreements subject to the trust.