Chapter Ins 52

Ins 52.21(6)(d) (d) The commissioner shall publicly disclose any decision made pursuant to this subsection to exempt a reinsurance treaty from this regulation, as well as the general basis therefor and including a summary description of the treaty.

Ins 52.21 History History: CR 21-066: cr. Register May 2022 No. 797, eff. 6-1-22; correction in (1) (c) 1., (4) (a), (b) made under s. 35.17, Stats., Register May 2022 No. 797.

Ins 52.22 Ins 52.22 Definitions. In this subchapter, unless the context otherwise requires:

Ins 52.22(1) (1) “Actuarial method” means the methodology used to determine the required level of primary security.

Ins 52.22(2) (2) “Covered policies” means the following: subject to the exemptions described in s. Ins 52.21 covered policies are those policies, other than grandfathered policies, of the following policy types:

Ins 52.22(2)(a) (a) Life insurance policies with guaranteed nonlevel gross premiums and/or guaranteed nonlevel benefits, except for flexible premium universal life insurance policies; or,

Ins 52.22(2)(b) (b) Flexible premium universal life insurance policies with provisions resulting in the ability of a policyholder to keep a policy in force over a secondary guarantee period.

Ins 52.22(3) (3) “Grandfathered policies” means policies of the types in sub. (2) that were issued prior to January 1, 2015; and ceded, as of December 31, 2014, as part of a reinsurance treaty that would not have met one of the exemptions set forth in s. Ins 52.21, had that section then been in effect.

Ins 52.22(4) (4) “Non-covered policies” means any policy that does not meet the definition of covered policies, including grandfathered policies.

Ins 52.22(5) (5) “Other security” means any security acceptable to the commissioner other than security meeting the definition of primary security.

Ins 52.22(6) (6) “Primary security” means the following forms of security:

Ins 52.22(6)(a) (a) Cash meeting the requirements of s. Ins 52.04 (1);

Ins 52.22(6)(b) (b) Securities listed by the securities valuation office meeting the requirements of s. Ins 52.04 (2) and (3), but excluding any synthetic letter of credit, contingent note, credit-linked note, or other similar security that operates in a manner similar to a letter of credit, and excluding any securities issued by the ceding insurer of any of its affiliates; and

Ins 52.22(6)(c) (c) For security held in connection with funds-withheld or modified coinsurance reinsurance treaties, primary security may include any of the following:

Ins 52.22(6)(c)1. 1. Commercial loans in good standing of CM3 quality and higher, as assigned by the national association of insurance commissioners;

Ins 52.22(6)(c)2. 2. Policy loans; and

Ins 52.22(6)(c)3. 3. Derivatives acquired in the normal course and used to support and hedge liabilities pertaining to the actual risks in the policies ceded pursuant to the reinsurance treaty.

Ins 52.22(7) (7) “Required level of primary security” means the dollar amount determined by applying the actuarial method to the risks ceded with respect to covered policies, but not more than the total reserve ceded.

Ins 52.22(8) (8) “Universal life insurance policy” has the meaning provided under s. Ins 2.80 (3) (L).

Ins 52.22(9) (9) “Valuation manual” means the valuation manual adopted by the national association of insurance commissioners as described s. 623.06 (9) (b), Stats., with all amendments adopted by the national association of insurance commissioners that are effective for the financial statement date on which credit for reinsurance is claimed.

Ins 52.22(10) (10) “VM-20” means the requirements for principle-based reserves for life products, including all relevant definitions, from the valuation manual.

Ins 52.22 History History: CR 21-066: cr. Register May 2022 No. 797, eff. 6-1-22.

Ins 52.23 Ins 52.23 Actuarial method.

Ins 52.23(1) (1) Actuarial method. The actuarial method to establish the required level of primary security for each reinsurance treaty subject to this regulation shall be VM-20, applied on a treaty-by-treaty basis, including all relevant definitions, from the valuation manual as then in effect, applied as follows:

Ins 52.23(1)(a) (a) For covered policies described in s. Ins 52.22 (2) (a), the actuarial method is the greater of the deterministic reserve or the net premium reserve regardless of whether the criteria for exemption testing can be met. However, if the covered policies do not meet the requirements of the stochastic reserve exclusion test in the valuation manual, then the actuarial method is the greatest of the deterministic reserve, the stochastic reserve, or the net premium reserve. In addition, if such covered policies are reinsured in a reinsurance treaty that also contains covered policies described in s. Ins 52.22 (2) (b), the ceding insurer may elect to instead use par. (b) below as the actuarial method for the entire reinsurance agreement. Whether this paragraph or par. (b) are used, the actuarial method must comply with any requirements or restrictions that the valuation manual imposes when aggregating these policy types for purposes of principle-based reserve calculations.

Ins 52.23(1)(b) (b) For covered policies described in s. Ins 52.22 (2) (b), the actuarial method is the greatest of the deterministic reserve, the stochastic reserve, or the net premium reserve, regardless of whether the criteria for exemption testing can be met.

Ins 52.23(1)(c) (c) Except as provided in par. (d), the actuarial method is to be applied on a gross basis to all risks with respect to the covered policies as originally issued or assumed by the ceding insurer.

Ins 52.23(1)(d) (d) If the reinsurance treaty cedes less than 100% of the risk with respect to the covered policies then the required level of primary security may be reduced as follows:

Ins 52.23(1)(d)1. 1. If a reinsurance treaty cedes only a quota share of some or all of the risks pertaining to the covered policies, the required level of primary security, as well as any adjustment under subd. 3., may be reduced to a pro rata portion in accordance with the percentage of the risk ceded;

Ins 52.23(1)(d)2. 2. If the reinsurance treaty in a non-exempt arrangement cedes only the risks pertaining to a secondary guarantee, the required level of primary security may be reduced by an amount determined by applying the actuarial method on a gross basis to all risks, other than risks related to the secondary guarantee, pertaining to the covered policies, except that for covered policies for which the ceding insurer did not elect to apply the provisions of VM-20 to establish statutory reserves, the required level of primary security may be reduced by the statutory reserve retained by the ceding insurer on those covered policies, where the retained reserve of those covered policies should be reflective of any reduction pursuant to the cession of mortality risk on a yearly renewable term basis in an exempt arrangement;

Ins 52.23(1)(d)3. 3. If a portion of the covered policy risk is ceded to another reinsurer on a yearly renewable term basis in an exempt arrangement, the required level of primary security may be reduced by the amount resulting by applying the actuarial method including the reinsurance section of VM-20 to the portion of the covered policy risks ceded in the exempt arrangement, except that for covered policies issued prior to January 1, 2017, this adjustment is not to exceed [cx/ (2 * number of reinsurance premiums per year)] where cx is calculated using the same mortality table used in calculating the net premium reserve; and

Ins 52.23(1)(d)4. 4. For any other treaty ceding a portion of risk to a different reinsurer, including but not limited to stop loss, excess of loss and other non-proportional reinsurance treaties, there will be no reduction in the required level of primary security.

Ins 52.23(1)(d)5. 5. It is possible for any combination of subds. 1. to 4. above to apply. Such adjustments to the required level of primary security will be done in the sequence that accurately reflects the portion of the risk ceded via the treaty. The ceding insurer should document the rationale and steps taken to accomplish the adjustments to the required level of primary security due to the cession of less than 100% of the risk.

Ins 52.23(1)(d)6. 6. The adjustments for other reinsurance will be made only with respect to reinsurance treaties entered into directly by the ceding insurer. The ceding insurer will make no adjustment as a result of a retrocession treaty entered into by the assuming insurers.

Ins 52.23(1)(e) (e) In no event will the required level of primary security resulting from application of the actuarial method exceed the amount of statutory reserves ceded.

Ins 52.23(1)(f) (f) If the ceding insurer cedes risks with respect to covered policies, including any riders, in more than one reinsurance treaty subject to this subchapter, in no event will the aggregate required level of primary security for those reinsurance treaties be less than the required level of primary security calculated using the actuarial method as if all risks ceded in those treaties were ceded in a single treaty subject to this subchapter;

Ins 52.23(1)(g) (g) If a reinsurance treaty subject to this subchapter cedes risk on both covered and non-covered policies, credit for the ceded reserves shall be determined as follows:

Ins 52.23(1)(g)1. 1. The actuarial method shall be used to determine the required level of primary security for the covered policies, and s. Ins 52.24, shall be used to determine the reinsurance credit for the covered policy reserves; and,

Ins 52.23(1)(g)2. 2. Credit for the non-covered policy reserves shall be granted only to the extent that security, in addition to the security held to satisfy the requirements of subd. 1., is held by or on behalf of the ceding insurer in accordance with ss. Ins 52.02 and 52.04. Any primary security used to meet the requirements of this subdivision may not be used to satisfy the required level of primary security for the covered policies.

Ins 52.23(2) (2) Valuation used for purposes of calculations. For the purposes of both calculating the required level of primary security pursuant to the actuarial method and determining the amount of primary security and other security, as applicable, held by or on behalf of the ceding insurer, the following shall apply:

Ins 52.23(2)(a) (a) For assets, including any such assets held in trust, that would be admitted under the national association of insurance commissioners accounting practices and procedures manual if they were held by the ceding insurer, the valuations are to be determined according to statutory accounting procedures as if such assets were held in the ceding insurer’s general account and without taking into consideration the effect of any prescribed or permitted practices; and

Ins 52.23(2)(b) (b) For all other assets, the valuations are to be those that were assigned to the assets for the purpose of determining the amount of reserve credit taken. In addition, the asset spread tables and asset default cost tables required by VM-20 shall be included in the actuarial method if adopted by the national association of insurance commissioners Life Actuarial (A) Task Force no later than the December 31st on or immediately preceding the valuation date for which the required level of primary security is being calculated. The tables of asset spreads and asset default costs shall be incorporated into the actuarial method in the manner specified in VM-20.

Ins 52.23 History History: CR 21-066: cr. Register May 2022 No. 797, eff. 6-1-22.

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

Ins 52.24(1) (1) Requirements. Subject to the exemptions in s. Ins 52.21 and sub. (2), credit for reinsurance shall be allowed with respect to ceded liabilities pertaining to covered policies pursuant to ss. Ins 52.02 or 52.04 if, and only if, in addition to all other requirements imposed by law or regulation, the following requirements are met on a treaty-by-treaty basis:

Ins 52.24(1)(a) (a) The ceding insurer’s statutory policy reserves with respect to the covered policies are established in full and in accordance with the applicable requirements of s. 623.06, Stats., and related regulations and actuarial guidelines, and credit claimed for any reinsurance treaty subject to this regulation does not exceed the proportionate share of those reserves ceded under the contract, and

Ins 52.24(1)(b) (b) The ceding insurer determines the required level of primary security with respect to each reinsurance treaty subject to this regulation and provides support for its calculation as determined to be acceptable to the commissioner; and

Ins 52.24(1)(c) (c) Funds consisting of primary security, in an amount at least equal to the required level of primary security, are held by or on behalf of the ceding insurer, as security under the reinsurance treaty within the meaning of s. Ins 52.04, on a funds withheld, trust, or modified coinsurance basis; and

Ins 52.24(1)(d) (d) Funds consisting of other security, in an amount at least equal to any portion of the statutory reserves as to which primary security is not held pursuant to par. (c) are held by or on behalf of the ceding insurer as security under the reinsurance treaty within the meaning of s. Ins 52.04; and

Ins 52.24(1)(e) (e) Any trust used to satisfy the requirements of this section shall comply with all of the conditions and qualifications of ss. Ins 52.04 and 52.05, except that:

Ins 52.24(1)(e)1. 1. Funds consisting of primary security or other security held in trust, shall for the purposes identified in s. Ins 52.23 (2), be valued according to the valuation rules set forth in s. Ins 52.23 (2), as applicable; and

Ins 52.24(1)(e)2. 2. There are no affiliate investment limitations with respect to any security held in such trust if such security is not needed to satisfy the requirements of par. (c); and

Ins 52.24(1)(e)3. 3. The reinsurance treaty must prohibit withdrawals or substitutions of trust assets that would leave the fair market value of the primary security within the trust, when aggregated with primary security outside the trust that is held by or on behalf of the ceding insurer in the manner required by par. (c), below 102% of the level required by par. (c) at the time of the withdrawal or substitution; and

Ins 52.24(1)(e)4. 4. The determination of reserve credit under s. Ins 52.05 (2), shall be determined according to the valuation rules set forth in s. Ins 52.23 (2), as applicable; and

Ins 52.24(1)(f) (f) The reinsurance treaty has been approved by the commissioner.

Ins 52.24(2) (2) Requirements at inception date and on an on-going basis: remediation.

Ins 52.24(2)(a) (a) The requirements of sub. (1) must be satisfied as of the date that risks under covered policies are ceded, if such date is on or after June 1, 2022, and on an ongoing basis thereafter. Under no circumstances shall a ceding insurer take or consent to any action or series of actions that would result in a deficiency under sub. (1) (c) or (d) with respect to any reinsurance treaty under which covered policies have been ceded, and in the event that a ceding insurer becomes aware at any time that such a deficiency exists, it shall use its best efforts to arrange for the deficiency to be eliminated as expeditiously as possible.

Ins 52.24(2)(b) (b) Prior to the due date of each quarterly or annual statement, each life insurance company that has ceded reinsurance within the scope of s. Ins 52.20 (2) shall perform an analysis, on a treaty-by-treaty basis, to determine, as to each reinsurance treaty under which covered policies have been ceded, whether as of the end of the immediately preceding calendar quarter, the valuation date, the requirements of sub. (1) (c) and (d) were satisfied. The ceding insurer shall establish a liability equal to the excess of the credit for reinsurance taken over the amount of primary security actually held pursuant to sub. (1) (c), unless either of the following are met:

Ins 52.24(2)(b)1. 1. The requirements of sub. (1) (c) and (d) were fully satisfied as of the valuation date as to such reinsurance treaty; or

Ins 52.24(2)(b)2. 2. Any deficiency has been eliminated before the due date of the quarterly or annual statement to which the valuation date relates through the addition of primary security and/or other security, as the case may be, in such amount and in such form as would have caused the requirements of sub. (1) (c) and (d) to be fully satisfied as of the valuation date.

Ins 52.24(2)(c) (c) Nothing in par. (b) shall be construed to allow a ceding company to maintain any deficiency under sub. (1) (c) or (d) for any period of time longer than is reasonably necessary to eliminate it.

Ins 52.24 History History: CR 21-066: cr. Register May 2022 No. 797, eff. 6-1-22.

Ins 52.25 Ins 52.25 Severability. If a provision of this regulation is held invalid, the remainder shall not be affected.

Ins 52.25 History History: CR 21-066: cr. Register May 2022 No. 797, eff. 6-1-22.

Ins 52.26 Ins 52.26 Prohibition against avoidance. No insurer that has covered policies as to which this subchapter applies, as set forth in s. Ins 52.20 (2), shall take any action or series of actions or enter into any transaction or arrangement or series of transactions or arrangements if the purpose of such action, transaction or arrangement or series thereof is to avoid the requirements of this regulation, or to circumvent its purpose and intent, as set forth in s. Ins 52.20 (1).

Ins 52.26 History History: CR 21-066: cr. Register May 2022 No. 797, eff. 6-1-22.