Chapter Ins 52

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.

Ins 52.02(4)(e)5. 5. No later than February 28 of each year, unless a later date is approved in writing by the commissioner or equivalent official of the ceding licensed insurer’s state of domicile or entry, the trustees of the trust shall report to the commissioner or equivalent official of the ceding licensed insurer’s state of domicile or entry in writing setting forth the balance in the trust and listing the trust’s investments at the preceding year end, and shall certify the date of termination of the trust, if so planned, or certify that the trust shall not expire prior to the next following December 31.

Ins 52.02(4)(e)6. 6. No amendment to the trust may be effective unless reviewed and approved in writing and in advance by the commissioner or equivalent official of the ceding licensed insurer’s state of domicile or entry.

Ins 52.02(4)(e)7. 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 federal law that is inconsistent with this provision.

Ins 52.02(4)(e)8. 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 30% of the assuming insurer’s liabilities attributable to reinsurance ceded by U.S. ceding insurers.

Ins 52.02(4m) (4m) The reinsurance is ceded to an assuming insurer that has been certified by the commissioner as a reinsurer in this state and secures its obligations in accordance with the requirements of this subsection.

Ins 52.02(4m)(a) (a) In order to be eligible for certification, the assuming insurer shall meet the following requirements:

Ins 52.02(4m)(a)1. 1. The assuming insurer shall be domiciled and licensed to transact insurance or reinsurance in a qualified jurisdiction, as determined by the commissioner pursuant to par. (c) of this subsection. If a certified reinsurer’s domiciliary jurisdiction ceases to be a qualified jurisdiction, the commissioner has the discretion to suspend the reinsurer’s certification indefinitely, in lieu of revocation.

Ins 52.02(4m)(a)2. 2. The assuming insurer shall maintain minimum capital and surplus, or its equivalent, of not less than $250,000,000. This requirement may also be satisfied by a group including incorporated and individual unincorporated underwriters having minimum capital and surplus equivalents, net of liabilities, of at least $250,000,000 and a central fund containing a balance of at least $250,000,000. For certified reinsurers not domiciled in the U.S., minimum capital and surplus shall be determined on a U.S. GAAP basis.

Ins 52.02(4m)(a)3. 3. The assuming insurer shall apply for certification and maintain current financial strength rating from two or more approved rating agencies. Approved rating agencies include Fitch Investor Service, Inc., Standard & Poor’s Corporation, Moody’s Investors Service, Inc., and A.M. Best Company. The commissioner shall assign a rating to each certified reinsurer and publish a list of all certified reinsurers and their ratings. The commissioner shall post notice on the office’s website promptly upon receipt of any application of certification including instructions on how members of the public may comment on the application. The commissioner shall issue a written notice to an assuming insurer no sooner than 30 days after receipt of the application indicating whether the assuming insurer has been approved for certification. If approved as a certified reinsurer, the notice shall include the rating assigned by the commissioner in accordance with this subdivision. Each certified reinsurer shall be rated on a legal entity basis, with consideration given to the group rating when the commissioner deems appropriate, except that a group including incorporated and individual unincorporated underwriters that has been approved to do business as a single certified reinsurer may be evaluated on the basis of its group rating. Factors that may be considered as part of the rating process include the following:

Ins 52.02(4m)(a)3.a. a. The certified reinsurer’s financial strength rating from an approved rating agency. The maximum rating that a certified reinsurer may be assigned will correspond to its financial strength rating as outlined in the table that follows. The commissioner shall use the lowest financial strength rating received from an approved rating agency in establishing the maximum rating of a certified reinsurer. A failure to obtain or maintain at least two financial strength ratings from approved rating agencies will result in the loss of eligibility for certification.

Ins 52.02(4m)(a)3.b. b. The applicant’s business practices in dealing with its ceding insurers, including compliance with contractual terms and obligations. If reinsurance obligations to U.S. cedents that are in dispute and that are more than 90 days past due exceed 5% of its reinsurance obligations to U.S. cedents as of the end of its prior financial reporting year, or the applicant’s reinsurance obligations to any of the top 10 U.S. cedents (based on the amount of outstanding reinsurance obligations as of the end of its prior financial reporting year) that are in dispute and are more than 90 days past due exceed 10% of its total reinsurance obligations to that U.S. cedent, then the applicant shall provide notice to the commissioner that reinsurance obligations in dispute and past due exceed the amounts described and a detailed explanation regarding the reasons for the amount of disputed or overdue claims, or both. The applicant shall also provide a description of the applicant’s business practices in dealing with U.S. ceding insurers, and a statement that the applicant commits to comply with all contractual requirements applicable to reinsurance contracts with U.S. ceding insurers. Upon receipt of such notice and explanation, the commissioner may request additional information concerning the applicant’s claims practices with regard to any or all U.S. ceding insurers.

Ins 52.02(4m)(a)3.c. c. For certified reinsurers domiciled in the U.S., a review of the most recent National Association of Insurance Commissioners Annual Statement Blank. For certified reinsurers not domiciled in the U.S., a review annually of Form CR-F or Form CR-S that are required to be filed under this subsection.

Ins 52.02 Note Note: Forms CR-F and CR-S are published as Chapter Ins 52 Appendices D to H.

Ins 52.02(4m)(a)3.d. d. The history of the certified reinsurer for prompt payment of claims under reinsurance agreements, based on analysis of ceding insurers, Schedule F reporting of overdue reinsurance recoverables including the proportion of obligations that are more than 90 days past due or are in dispute, with specific emphasis placed on obligations payable to companies that are in administrative supervision or receivership.

Ins 52.02(4m)(a)3.e. e. Regulatory actions against the certified reinsurer.

Ins 52.02(4m)(a)3.f. f. The report of the independent auditor on the financial statements of the insurance enterprise, on the basis described in subd. 3. g.

Ins 52.02(4m)(a)3.g. g. For certified reinsurers not domiciled in the U.S., audited financial statements, regulatory filings, and actuarial opinion, as filed with the non-U.S. jurisdiction supervisor with a translation into English. Upon initial application for certification, the commissioner shall consider audited financial statements for the last 2 years filed with its non-U.S. jurisdiction supervisor;

Ins 52.02(4m)(a)3.h. h. The liquidation priority of obligations to a ceding insurer in the certified reinsurer’s domiciliary jurisdiction in the context of an insolvency proceeding.

Ins 52.02(4m)(a)3.i. i. A certified reinsurer’s participation in any solvent scheme of arrangement, or similar procedure, which involves U.S. ceding insurers. The commissioner shall receive prior notice from a certified reinsurer that proposes participation by the certified reinsurer in a solvent scheme of arrangement.

Ins 52.02(4m)(a)3.j. j. Any other information deemed relevant by the commissioner.

Ins 52.02(4m)(a)4. 4. The assuming insurer shall agree to submit to the jurisdiction of this state by submitting a properly executed Form CR-1, appointing the commissioner as its agent for service of process in this state, and agreeing to provide security of 100% of the assuming insurer’s liabilities attributable to reinsurance ceded by U.S. ceding insurers if its resists enforcement of a final U.S. judgment. The commissioner shall not certify an assuming insurer that is domiciled in a jurisdiction the commissioner has determined does not adequately and promptly enforce final U.S. judgments or arbitration awards.

Ins 52.02 Note Note: Form CR-1 is published in Chapter Ins 52 Appendix B.

Ins 52.02(4m)(a)5. 5. The certified reinsurer must agree to meet applicable filing requirements. All information submitted by certified reinsurers which is not otherwise public information subject to disclosure shall be withheld from public disclosure under s. 601.465, Stats. The filing requirements are as follows:

Ins 52.02(4m)(a)5.a. a. Notification within 10 days of any regulatory actions taken against the certified reinsurer, any changes in the provisions of its domiciliary license or any change in rating by an approved rating agency, including a statement describing changes and the reasons therefore.

Ins 52.02(4m)(a)5.b. b. Annually, Form CR-F or CR-S, as applicable.

Ins 52.02 Note Note: Forms CR-F and CR-S are published as Chapter Ins 52 Appendices D to H.

Ins 52.02(4m)(a)5.c. c. Annually, the report of the independent auditor on the financial statements of the insurance enterprise, on the basis described in subd. 3. f.