Budget Amendment ID: FY2022-S3-128-R1
Redraft OTH 128
Credit for Reinsurance
Messrs. Crighton and Moore moved that the proposed new text be amended by inserting after section 23 the following 5 sections:-
“SECTION 23A. Subsection (1) of section 20A of chapter 175 of the General Laws, as so appearing, is hereby amended by striking out the first sentence and inserting in place thereof the following sentence:- Credit for reinsurance shall be allowed a domestic ceding insurer as either an asset or a deduction from liability on account of reinsurance ceded only when the reinsurer meets the requirements of paragraph (A), (B), (C), (D), (E), (E1/2) or (F) of this subsection.
SECTION 23B. Said subsection (1) of said section 20A of said chapter 175, as so appearing, is hereby further amended by inserting after paragraph (E) the following paragraph:-
(E1/2) (i) Credit shall be allowed when the reinsurance is ceded to an assuming insurer meeting each of the conditions set forth below.
(a) The assuming insurer shall have its head office or be domiciled in, as applicable, and be licensed in a Reciprocal Jurisdiction. For the purposes of this paragraph, “Reciprocal Jurisdiction” shall mean a jurisdiction that is:
1. 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; provided, however, that for the purposes of this subsection, a “covered agreement” shall mean an agreement entered into pursuant to the federal Dodd-Frank Wall Street Reform and Consumer Protection Act, 31 U.S.C. §§ 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 the commonwealth or for allowing the ceding insurer to recognize credit for reinsurance;
2. A United States jurisdiction that meets the requirements for accreditation under the National Association of Insurance Commissioners financial standard and accreditation program; or
3. A qualified jurisdiction, as determined by the commissioner pursuant to subsection (1)(E)(iii) of this section, which is not otherwise described in subparagraph (a)(1) or (a)(2) above and which meets certain additional requirements, consistent with the terms and conditions of in-force covered agreements, as specified by the commissioner in regulation.
(b) The assuming insurer shall have and maintain on an ongoing basis minimum capital and surplus, or its equivalent, calculated according to the methodology of its domiciliary jurisdiction, in an amount to be set forth in regulation. If the assuming insurer is an association, including incorporated and individual unincorporated underwriters, it shall have and maintain on an ongoing basis minimum capital and surplus equivalents, net of liabilities, calculated according to the methodology applicable in its domiciliary jurisdiction, and a central fund containing a balance in amounts to be set forth in regulation.
(c) The assuming insurer shall have and maintain on an ongoing basis a minimum solvency or capital ratio, as applicable, which will be set forth in regulation. If the assuming insurer is an association, including incorporated and individual unincorporated underwriters, it shall have and maintain on an ongoing basis a minimum solvency or capital ratio in the Reciprocal Jurisdiction where the assuming insurer has its head office or is domiciled, as applicable, and is also licensed.
(d) The assuming insurer shall agree and provide adequate assurance to the commissioner, in a form specified by the commissioner pursuant to regulation, that:
1. The assuming insurer shall provide prompt written notice and explanation to the commissioner if it falls below the minimum requirements set forth in subparagraphs (b) or (c), or if any regulatory action is taken against it for serious noncompliance with applicable law;
2. The assuming insurer shall consent in writing to the jurisdiction of the courts of the commonwealth and to the appointment of the commissioner as agent for service of process; provided, however, that the commissioner may require that consent for service of process be provided to the commissioner and included in each reinsurance agreement; provided further, that nothing in this provision shall limit or in any way alter the capacity of parties to a reinsurance agreement to agree to alternative dispute resolution mechanisms, except to the extent such agreements are unenforceable under applicable insolvency or delinquency laws;
3. The assuming insurer shall consent in writing to pay all final judgments, wherever enforcement is sought, obtained by a ceding insurer or its legal successor that have been declared enforceable in the jurisdiction where the judgment was obtained;
4. Each reinsurance agreement shall include a provision requiring the assuming insurer to provide security in an amount equal to 100 per cent of the assuming insurer’s liabilities attributable to reinsurance ceded pursuant to that agreement if the assuming insurer resists enforcement of a final judgment that is enforceable under the law of the jurisdiction in which it was obtained or a properly enforceable arbitration award, whether obtained by the ceding insurer or by its legal successor on behalf of its resolution estate; and
5. The assuming insurer shall confirm that it is not presently participating in any solvent scheme of arrangement that involves this state’s ceding insurers and agrees to notify the ceding insurer and the commissioner and to provide security in an amount equal to 100 per cent of the assuming insurer’s liabilities to the ceding insurer should the assuming insurer enter into such as solvent scheme of arrangement; provided, however, that such security shall be in a form consistent with the provisions of subsection (1)(E) and (2) and as specified by the commissioner in regulation.
(e) The assuming insurer or its legal successor shall provide, if requested by the commissioner, on behalf of itself and any legal predecessors certain documentation to the commissioner as specified by the commissioner in regulation.
(f) The assuming insurer shall maintain a practice of prompt payment of claims under reinsurance agreements pursuant to criteria set forth in regulation.
(g)The assuming insurer’s supervisory authority shall confirm to the commissioner on an annual basis that as of the preceding December 31 or at the annual date otherwise statutorily reported to the Reciprocal Jurisdiction that the assuming insurer complies with the requirements set forth in subparagraphs (b) and (c).
(h) Nothing in this provision precludes an assuming insurer from providing the commissioner with information on a voluntary basis.
(ii) The commissioner shall timely create and publish a list of Reciprocal Jurisdictions.
(a) The commissioner’s list shall include any Reciprocal Jurisdiction as defined under subsection (1)(E1/2)(i)(a)(1) and (2), and shall consider any other Reciprocal Jurisdiction included on the National Association of Insurance Commissioners’ list. The commissioner may approve a jurisdiction that does not appear on the National Association of Insurance Commissioners’ list of Reciprocal Jurisdictions in accordance with criteria to be developed under regulations issued by the commissioner.
(b) The commissioner may remove a jurisdiction from the list of Reciprocal Jurisdictions upon a determination that the jurisdiction no longer meets the requirements of a Reciprocal Jurisdiction, in accordance with a process set forth in regulations issued by the commissioner, except that the commissioner shall not remove from the list of Reciprocal Jurisdiction as defined under subsection (1)(E1/2)(i)(a)(1) and (2). Upon removal of a Reciprocal Jurisdiction from the list credit for reinsurance ceded to an assuming insurer that has its home office or is domiciled in that jurisdiction shall be allowed, if otherwise allowed pursuant to this section.
(iii) The commissioner shall timely create and publish a list of assuming insurers that have satisfied the conditions set forth in this subsection and to which cessions shall be granted credit in accordance with this subsection. The commissioner may add an assuming insurer to such list if a National Association of Insurance Commissioners accredited jurisdiction has added such assuming insurer to a list of such assuming insurers or if, upon initial eligibility, the assuming insurer submits the information to the commissioner as required under paragraph (i)(d) of this subsection and complies with any additional requirements that the commissioner may impose by regulation, except to the extent that they conflict with an applicable covered agreement.
(iv) If the commissioner determines that an assuming insurer no longer meets 1 or more of the requirements under this subsection, the commissioner may revoke or suspend the eligibility of the assuming insurer for recognition under this subsection in accordance with procedures set forth in regulation.
(a)While an assuming insurer’s eligibility is suspended, no reinsurance agreement issued, amended or renewed after the effective date of the suspension shall be qualified for credit except to the extent that the assuming insurer’s obligations under the contract are secured in accordance with subsection (2).
(b) If an assuming insurer’s eligibility is revoked, no credit for reinsurance may be granted after the effective date of the revocation with respect to any reinsurance agreements entered into by the assuming insurer, including reinsurance agreements entered into prior to the date of revocation, except to the extent that the assuming insurer’s obligations under the contract are secured in a form acceptable to the commissioner and consistent with the provision of subsection (2).
(v) If subject to a legal process of rehabilitation, liquidation or conservation, as applicable, the ceding insurer or its representative may seek and, if determined appropriate by the court in which the proceedings are pending, may obtain an order requiring that the assuming insurer post security for all outstanding ceded liabilities.
(vi) Nothing in this subsection shall limit or in any way alter the capacity of parties to a reinsurance agreement to agree on requirements for security or other terms in that reinsurance agreement, except as prohibited by this section or other applicable law or regulation.
(vii) Credit may be taken under this paragraph only with respect to losses incurred and reserves reported on or after the later of: (i) the date on which the assuming insurer has met all eligibility requirements pursuant to subsection (1)(E1/2)(i); and (ii) the effective date of the new reinsurance agreement, amendment or renewal.
(a) This paragraph shall not alter or impair a ceding insurer’s right to take credit for reinsurance, to the extent that credit is not available under this subsection, as long as the reinsurance qualifies for credit under any other applicable provision of this section.
(b) Nothing in this subsection shall authorize an assuming insurer to withdraw or reduce the security provided under any reinsurance agreement except as permitted by the terms of the agreement.
(c) Nothing in this subsection shall limit or in any way alter the capacity of parties to any reinsurance agreement to renegotiate the agreement.
SECTION 23C. Said subsection (1) of said section 20A of said chapter 175, as so appearing, is hereby further amended by striking out paragraph (F) and inserting in place thereof the following paragraph:-
(F) Credit shall be allowed when the reinsurance is ceded to an assuming insurer not meeting the requirements of paragraph (A), (B), (C), (D), (E) or (E1/2) but only with respect to the insurance of risks located in jurisdictions where such reinsurance is required by applicable law or regulation of that jurisdiction.
SECTION 23D. Paragraph (H) of said subsection (1) of said section 20A of said chapter 175, as so appearing, is hereby amended by striking out the introductory paragraph and inserting in place thereof the following paragraph:-
If the assuming insurer does not meet the requirements of paragraphs (A), (B), (C) or (E1/2), the credit permitted by paragraph (D) shall not be allowed unless the assuming insurer agrees in substance in the trust agreements to the following conditions:
SECTION 23E. Clause (iv) of paragraph (B) of subsection (5) of said section 20A of said chapter 175, as so appearing, is hereby amended by striking out the subclauses (a) and (b) and inserting in place thereof the following 3 subclauses:-
(a) meets the conditions set forth in paragraph (E1/2) of subsection (1);
(b) is certified in the commonwealth; or
(c) maintains at least $250,000,000 in capital and surplus when determined in accordance with the National Association of Insurance Commissioners’ Accounting Practices and Procedures Manual, as amended, excluding the impact of any permitted or prescribed practices, and is licensed in at least 26 states or licensed in at least 10 states and licensed or accredited in a total of at least 35 states.”; and
by inserting after section 60 the following section:-
“SECTION 60A. Credit may be taken under paragraph (E1/2) of subsection (1) of section 20A of chapter 175 of the General Laws only for reinsurance agreements entered into, amended or renewed on or after the effective date of this act.”.