Chapter Ins 52

Ins 52.05(2)(q) (q) Any trust agreement provision which permits or requires the trustee, upon termination of the trust account, to deliver assets not withdrawn by the beneficiary to the grantor, also prohibits the trustee from delivering the assets until the beneficiary gives written approval.

Ins 52.05(3) (3) A trust agreement under s. Ins 52.04 (3) may permit the beneficiary to at any time designate a party to which all or part of the trust assets are to be transferred. The transfer may be conditioned upon the trustee receiving, prior to or simultaneously, other specified assets.

Ins 52.05(4) (4) A ceding insurer may take credit under s. Ins 52.04 (3) only if there is a written reinsurance agreement entered into in conjunction with a trust agreement which complies with sub. (2) and the reinsurance agreement:

Ins 52.05(4)(a) (a) Requires the assuming insurer to enter into a trust agreement and to establish a trust account for the benefit of the ceding insurer, and specifies what the agreement is to cover;

Ins 52.05(4)(b) (b) Also contains the provision the trust agreement is required to have under sub. (2) (L), except the reinsurance agreement is not required to also have that provision if the reinsurance agreement covers only risks other than life, annuities or accident and health;

Ins 52.05(4)(c) (c) Requires the assuming insurer, prior to depositing assets with the trustee, to execute assignments or endorsements in blank, or to transfer legal title to the trustee of all shares, obligations or any other assets requiring assignments, in order that the ceding insurer, or the trustee upon the direction of the ceding insurer, may whenever necessary negotiate these assets without consent or signature from the assuming insurer or any other entity;

Ins 52.05(4)(d) (d) Requires that all settlements of account between the ceding insurer and the assuming insurer be made in cash or its equivalent; and

Ins 52.05(4)(e) (e) Stipulates that the assuming insurer and the ceding insurer agree that the assets in the trust account, established pursuant to the provisions of the reinsurance agreement, may be withdrawn by the ceding insurer at any time, notwithstanding any other provisions in the reinsurance agreement, and shall be utilized and applied by the ceding insurer or its successors in interest by operation of law, including, but not limited to, by any liquidator, rehabilitator, receiver or conservator of the ceding insurer, without diminution because of insolvency on the part of the ceding insurer or the assuming insurer, only for the following purposes:

Ins 52.05(4)(e)1. 1. To reimburse the ceding insurer for the assuming insurer’s share of premiums returned to the owners of policies reinsured under the reinsurance agreement because of cancellations of the policies;

Ins 52.05(4)(e)2. 2. To reimburse the ceding insurer for the assuming insurer’s share of surrenders and benefits or losses paid by the ceding insurer pursuant to the provisions of the policies reinsured under the reinsurance agreement;

Ins 52.05(4)(e)3. 3. To fund an account with the ceding insurer in an amount at least equal to the deduction, for reinsurance ceded, from the ceding insurer liabilities for policies ceded under the agreement. The account shall include, but not be limited to, amounts for policy reserves, claims and losses incurred (including losses incurred but not reported), loss adjustment expenses and unearned premium reserves; and

Ins 52.05(4)(e)4. 4. To pay any other amounts the ceding insurer claims are due under the reinsurance agreement.

Ins 52.05(4)(f) (f) If it gives the assuming insurer the right to seek to withdraw from the trust account all or any part of the trust assets, restricts that right by requiring:

Ins 52.05(4)(f)1. 1. The prior written approval by the ceding insurer which the reinsurance agreement may require the ceding insurer to not unreasonably or arbitrarily withhold; and

Ins 52.05(4)(f)2. 2. That withdrawal may be approved or permitted only if after the withdrawal the market value of the trust account is no less than 102% of the required amount or if the assuming insurer, at the time of withdrawal, replaces the withdrawn assets with other qualified assets having a market value equal to the market value of the assets withdrawn so as to maintain at all times the deposit in the required amount.

Ins 52.05(4)(g) (g) Does not require the return of amounts withdrawn under the provision required under par. (e) except the reinsurance agreement may require the ceding insurer to return:

Ins 52.05(4)(g)1. 1. Any amount withdrawn in excess of the actual amounts required for par. (e) 1., 2., or 3., or in the case of par. (e) 4., any amounts that are subsequently determined not to be due; and

Ins 52.05(4)(g)2. 2. Interest payments, at a rate not in excess of the prime rate of interest, on the amounts held under par. (e) 3.

Ins 52.05(4)(h) (h) If it permits the award of attorneys’ fees or costs or interest at a rate other than provided under par. (g) 2., permits it only as the result of an award by any arbitration panel or court of competent jurisdiction and only of:

Ins 52.05(4)(h)1. 1. Interest at a rate different from that provided in par. (g) 2;

Ins 52.05(4)(h)2. 2. Court or arbitration costs;

Ins 52.05(4)(h)3. 3. Attorneys’ fees; or

Ins 52.05(4)(h)4. 4. Any other reasonable expenses.

Ins 52.05(5) (5) The failure of any trust agreement to specifically identify the beneficiary shall not be construed to affect any actions or rights which the commissioner or equivalent official may take or possess pursuant to the provisions of the laws of the state of domicile or entry of the licensed insurer.

Ins 52.05 History History: Cr. Register, July, 1993, No. 451, eff. 8-1-93; am. (4) (b), Register, December, 1995, No. 480, eff. 1-1-96; CR 17-004: am. (2) (i), (j) Register December 2017 No. 744, eff. 1-1-18; CR 21-066: am. (2) (k) (intro.) Register May 2022 No. 797, eff. 6-1-22.

Ins 52.06 Ins 52.06 Letters of credit.

Ins 52.06(1) (1) In this section “beneficiary” means the insurer for whose benefit the letter of credit has been established and any successor of the beneficiary by operation of law, including, but not limited to, a court-appointed domiciliary receiver, including, but not limited to, a conservator, rehabilitator or liquidator.

Ins 52.06(2) (2) A ceding insurer may take credit under s. Ins 52.04 (4) only if the letter of credit complies with all of the following:

Ins 52.06(2)(a) (a) The letter of credit is clean, irrevocable and unconditional.

Ins 52.06(2)(b) (b) The letter of credit contains an issue date and date of expiration and stipulates that the beneficiary need only draw a sight draft under the letter of credit and present it to obtain funds and that no other document need be presented.

Ins 52.06(2)(c) (c) The letter of credit states that it is not subject to any condition or qualifications outside of the letter of credit.

Ins 52.06(2)(d) (d) The letter of credit itself shall not contain reference to any other agreements, documents or entities, except as provided in sub. (3) (a) and (b).

Ins 52.06(2)(e) (e) If the heading of the letter of credit includes a section which includes notations to provide a reference for the letter of credit, the section shall be boxed section and clearly marked to indicate that the information is for internal identification purposes only.

Ins 52.06(2)(f) (f) The letter of credit states that the obligation of the qualified United States financial institution under the letter of credit is in no way contingent upon reimbursement.

Ins 52.06(2)(g) (g) The term of the letter of credit is for at least one year and the letter of credit contains a clause which prevents the expiration of the letter of credit unless the issuer gives written notice to the ceding insurer. The “evergreen clause” shall provide for a period of no less than 30 days’ notice to the ceding insurer prior to the expiration date for nonrenewal.

Ins 52.06(2)(h) (h) The letter of credit states whether it is subject to and governed by the laws of this state or the uniform customs and practice for documentary credits of the international chamber of commerce (Publication 600) and that all drafts drawn under the letter of credit are presentable at an office in the United States of a qualified United States financial institution.

Ins 52.06(2)(i) (i) If the letter of credit is made subject to the uniform customs and practice for documentary credits of the international chamber of commerce (Publication 600), the letter of credit specifically addresses and makes provision for an extension of time to draw against the letter of credit if any of the occurrences specified in Article 36 of Publication 600 occur.

Ins 52.06(2)(j) (j) The letter of credit is issued or confirmed by a qualified United States financial institution authorized to issue letters of credit.

Ins 52.06(2)(k) (k) If the letter of credit is issued by a financial institution which is not a qualified United States financial institution:

Ins 52.06(2)(k)1. 1. The issuing financial institution formally designates the confirming qualified United States financial institution as its agent for the receipt and payment of the drafts; and

Ins 52.06(2)(k)2. 2. The letter of credit “evergreen clause” under par. (g) requires the confirming qualified United States financial institution to give written notice to the ceding insurer at least 30 days prior to expiration date for nonrenewal.

Ins 52.06(3) (3) A ceding insurer may take credit under s. Ins 52.04 (4) only if there is a written reinsurance agreement in conjunction with the letter of credit and the reinsurance agreement:

Ins 52.06(3)(a) (a) Requires the assuming insurer to provide letters of credit to the ceding insurer, specifies what the letters of credit are to cover, and provides that the provisions required under this paragraph and par. (b) apply without diminution because of insolvency by either the ceding or assuming insurer.

Ins 52.06(3)(b) (b) Except as permitted under par. (d), stipulates that the assuming insurer and ceding insurer agree that the letter of credit provided by the assuming insurer under the reinsurance agreement may be drawn upon at any time, notwithstanding any other provisions in the agreement, and may be utilized by the ceding insurer or its successors in interest including, but not limited to, by any liquidator, rehabilitator, receiver or conservator of the ceding insurer, without diminution because of insolvency on the part of the ceding insurer or the assuming insurer, only for one or more of the following reasons:

Ins 52.06(3)(b)1. 1. To reimburse the ceding insurer for the assuming insurer’s share of premiums returned to the owners of policies reinsured under the reinsurance agreement because of cancellations of the policies;

Ins 52.06(3)(b)2. 2. To reimburse the ceding insurer for the assuming insurer’s share of surrenders and benefits or losses paid by the ceding insurer under provisions of the policies reinsured under the reinsurance agreement;

Ins 52.06(3)(b)3. 3. To fund an account with the ceding insurer in an amount at least equal to the deduction, for reinsurance ceded, from the ceding insurer liabilities for policies ceded under the agreement. The account shall include, but not be limited to, amounts for policy reserves, claims and losses incurred (including losses incurred but not reported), loss adjustment expenses and unearned premium reserves; and

Ins 52.06(3)(b)4. 4. To pay any other amounts the ceding insurer claims are due under the reinsurance agreement.

Ins 52.06(3)(c) (c) Does not require the return of amounts drawn under the letter of credit except the reinsurance agreement may require the ceding insurer to return:

Ins 52.06(3)(c)1. 1. Any amount withdrawn in excess of the actual amounts required for par. (b) 1., 2., or 3., or in the case of par. (b) 4., any amounts that are subsequently determined not to be due; and

Ins 52.06(3)(c)2. 2. Interest payments, at a rate not in excess of the prime rate of interest, on the amounts held under par. (b) 3.

Ins 52.06(3)(d) (d) Requires a trust agreement to accomplish to the purpose of par. (b), instead of including that provision in the reinsurance agreement, and the trust agreement is incorporated in the reinsurance agreement or separately executed except a trust agreement may be used only if the reinsurance agreement covers risks other than life, annuities and health and if it is customary practice to provide a letter of credit for a specific purpose.

Ins 52.06 History History: Cr. Register, July, 1993, No. 451, eff. 8-1-93; CR 17-004: am. (2) (h), (i) Register December 2017 No. 744, eff. 1-1-18.

Ins 52.065 Ins 52.065 Concentration Risk.

Ins 52.065(1) (1) A ceding insurer shall take steps to manage its reinsurance recoverable balances proportionate to its own book of business. A domestic ceding insurer shall notify the commissioner within 30 days after reinsurance recoverable from any single assuming insurer, or group of affiliated assuming insurers, exceeds 50% of the domestic ceding insurer’s last reported surplus to policyholders, or after it determined that reinsurance recoverable from any single assuming insurer, or of affiliated assuming insurers, is likely to exceed this limit. The notification shall include an explanation demonstrating that the exposure is safely managed by the domestic ceding insurer.

Ins 52.065(2) (2) A ceding insurer shall take steps to diversity its reinsurance program. A domestic ceding insurer shall notify the commissioner within 30 days after ceding to any single assuming insurer, or group of affiliated assuming insurers, more than 20% of the ceding insurer’s gross written premium in the prior calendar year, or after it has determined that the reinsurance ceded to any single assuming insurer, or group of affiliated assuming insurers, is likely to exceed this limit. The notification shall include an explanation demonstrating that the exposure is safely managed by the domestic ceding insurer.

Ins 52.065 History History: CR 17-004: cr. Register December 2017 No. 744, eff. 1-1-18; corrections made under s. 35.17, Stats., Register December 2017 No. 744.

Ins 52.07 Ins 52.07 Applicability.

Ins 52.07(1) (1) This subchapter applies to determine whether credit may be taken for:

Ins 52.07(1)(a) (a) Any reinsurance ceded under agreements entered into on or after August 1, 1993; or

Ins 52.07(1)(b) (b) Any reinsurance ceded if the reinsurance agreement is renewed by agreement on or after August 1, 1993.

Ins 52.07(2) (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 subchapter under sub. (1).

Ins 52.07 Note Note: Ins 6.73 was repealed eff. 8-1-93.

Ins 52.07(3) (3) This 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.

Ins 52.07(4) (4) Nothing in this 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 subchapter or that it is in sound financial condition and no reinsurer or officer, employee or agent of a reinsurer may make such a representation.

Ins 52.07(5) (5) 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 subchapter applies to the state life fund.

Ins 52.07 History History: Cr. Register, July, 1993, No. 451, eff. 8-1-93; correction in (3) made under s. 13.92 (4) (b) 7., Stats., Register February 2013 No. 686; CR 21-066: am. (1) (intro.), (2) to (5) Register May 2022 No. 797, eff. 6-1-22.

subch. II of ch. Ins 52 Subchapter II — Credit for Reinsurance Involving Term and Universal Life Reserve Financing

Ins 52.20 Ins 52.20 Purpose, intent, and applicability. In addition to provisions contained at s. Ins 2.80, the following apply to this subchapter:

Ins 52.20(1) (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.

Ins 52.20(2) (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.

Ins 52.20 History History: CR 21-066: cr. Register May 2022 No. 797, eff. 6-1-22; correction in (intro.) made under s. 35.17, Stats., Register May 2022 No. 797.

Ins 52.21 Ins 52.21 Exemptions. This subchapter does not apply to the situations described below:

Ins 52.21(1) (1) Reinsurance of:

Ins 52.21(1)(a) (a) Policies that satisfy the criteria for exemption set forth in s. Ins 2.80 (5) (k) or (L) that were issued prior to June 1, 2022.

Ins 52.21(1)(b) (b) Portions of policies that satisfy the criteria for exemption set forth in s. Ins 2.80 (5) (j), that were issued prior to June 1, 2022.

Ins 52.21(1)(c) (c) Any universal life policy that meets the following requirements:

Ins 52.21(1)(c)1. 1. Secondary guarantee period, if any, is 5 years or less.

Ins 52.21(1)(c)2. 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

Ins 52.21(1)(c)3. 3. The initial surrender charge is not less than 100% of the first year annualized specified premium for the secondary guarantee period.

Ins 52.21(1)(d) (d) Credit life insurance.

Ins 52.21(1)(e) (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.

Ins 52.21(1)(f) (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.

Ins 52.21(2) (2) Reinsurance ceded to an assuming insurer that meets the applicable requirements of s. Ins 52.02 (4);

Ins 52.21(3) (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:

Ins 52.21(3)(a) (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

Ins 52.21(3)(b) (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

Ins 52.21(4) (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:

Ins 52.21(4)(a) (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;