Bill Text: FL S0728 | 2021 | Regular Session | Enrolled
Bill Title: Credit for Reinsurance
Spectrum: Partisan Bill (Republican 1-0)
Status: (Passed) 2021-06-17 - Chapter No. 2021-101 [S0728 Detail]
Download: Florida-2021-S0728-Enrolled.html
ENROLLED 2021 Legislature SB 728 2021728er 1 2 An act relating to credit for reinsurance; amending s. 3 624.610, F.S.; making a technical change; transferring 4 specified authority and duties relating to credit for 5 reinsurance from the Commissioner of Insurance to the 6 Office of Insurance Regulation; revising the attorney 7 designation requirement in reinsurance agreements with 8 certain assuming insurers under certain circumstances; 9 adding conditions under which a ceding insurer must be 10 allowed credit for reinsurance; defining the terms 11 “reciprocal jurisdiction” and “covered agreement”; 12 specifying requirements for assuming insurers and 13 reinsurance agreements; requiring the office to 14 publish a list of reciprocal jurisdictions on its 15 website; authorizing the office to remove reciprocal 16 jurisdictions under a specified circumstance; 17 specifying documentation requirements; authorizing a 18 ceding insurer or its representative that is subject 19 to rehabilitation, liquidation, or conservation to 20 seek a certain court order; providing construction; 21 specifying a limitation on credit taken by a ceding 22 insurer; requiring the office to publish on its 23 website a list of certain assuming insurers; 24 authorizing the office to revoke or suspend an 25 assuming insurer’s eligibility under certain 26 circumstances; prohibiting credit for reinsurance 27 under certain circumstances; providing exceptions; 28 making technical changes; conforming provisions to 29 changes made by the act; providing an effective date. 30 31 Be It Enacted by the Legislature of the State of Florida: 32 33 Section 1. Present subsections (4) through (15) of section 34 624.610, Florida Statutes, are redesignated as subsections (5) 35 through (16), respectively, a new subsection (4) is added to 36 that section, and subsection (2), paragraphs (c), (e), and (f) 37 of subsection (3), present subsection (4), paragraph (a) of 38 present subsection (5), and paragraph (b) of present subsection 39 (11) are amended, to read: 40 624.610 Reinsurance.— 41 (2) Credit for reinsurance must be allowed a ceding insurer 42 as either an asset or a reductiondeductionfrom liability on 43 account of reinsurance ceded only when the reinsurer meets the 44 requirements of paragraph (3)(a), paragraph (3)(b),orparagraph 45 (3)(c), or subsection (4). Credit must be allowed under 46 paragraph (3)(a) or paragraph (3)(b) only for cessions of those 47 kinds or lines of business that the assuming insurer is 48 licensed, authorized, or otherwise permitted to write or assume 49 in its state of domicile or, in the case of a United States 50 branch of an alien assuming insurer, in the state through which 51 it is entered and licensed or authorized to transact insurance 52 or reinsurance. 53 (3) 54 (c)1. Credit must be allowed when the reinsurance is ceded 55 to an assuming insurer that maintains a trust fund in a 56 qualified United States financial institution, as defined in 57 paragraph (6)(b)(5)(b), for the payment of the valid claims of 58 its United States ceding insurers and their assigns and 59 successors in interest. To enable the office to determine the 60 sufficiency of the trust fund, the assuming insurer shall report 61 annually to the office information substantially the same as 62 that required to be reported on the NAIC Annual Statement form 63 by authorized insurers. The assuming insurer shall submit to 64 examination of its books and records by the office and bear the 65 expense of examination. 66 2.a. Credit for reinsurance must not be granted under this 67 subsection unless the form of the trust and any amendments to 68 the trust have been approved by: 69 (I) The insurance regulator of the state in which the trust 70 is domiciled; or 71 (II) The insurance regulator of another state who, pursuant 72 to the terms of the trust instrument, has accepted principal 73 regulatory oversight of the trust. 74 b. The form of the trust and any trust amendments must be 75 filed with the insurance regulator of every state in which the 76 ceding insurer beneficiaries of the trust are domiciled. The 77 trust instrument must provide that contested claims are valid 78 and enforceable upon the final order of any court of competent 79 jurisdiction in the United States. The trust must vest legal 80 title to its assets in its trustees for the benefit of the 81 assuming insurer’s United States ceding insurers and their 82 assigns and successors in interest. The trust and the assuming 83 insurer are subject to examination as determined by the 84 insurance regulator. 85 c. The trust remains in effect for as long as the assuming 86 insurer has outstanding obligations due under the reinsurance 87 agreements subject to the trust. No later than February 28 of 88 each year, the trustee of the trust shall report to the 89 insurance regulator in writing the balance of the trust and list 90 the trust’s investments at the preceding year end, and shall 91 certify that the trust will not expire prior to the following 92 December 31. 93 3. The following requirements apply to the following 94 categories of assuming insurer: 95 a. The trust fund for a single assuming insurer consists of 96 funds in trust in an amount not less than the assuming insurer’s 97 liabilities attributable to reinsurance ceded by United States 98 ceding insurers, and, in addition, the assuming insurer shall 99 maintain a trusteed surplus of not less than $20 million. Not 100 less than 50 percent of the funds in the trust covering the 101 assuming insurer’s liabilities attributable to reinsurance ceded 102 by United States ceding insurers and trusteed surplus shall 103 consist of assets of a quality substantially similar to that 104 required in part II of chapter 625. Clean, irrevocable, 105 unconditional, and evergreen letters of credit, issued or 106 confirmed by a qualified United States financial institution, as 107 defined in paragraph (6)(a)(5)(a), effective no later than 108 December 31 of the year for which the filing is made and in the 109 possession of the trust on or before the filing date of its 110 annual statement, may be used to fund the remainder of the trust 111 and trusteed surplus. 112 b.(I) In the case of a group including incorporated and 113 individual unincorporated underwriters: 114 (A) For reinsurance ceded under reinsurance agreements with 115 an inception, amendment, or renewal date on or after August 1, 116 1995, the trust consists of a trusteed account in an amount not 117 less than the group’s several liabilities attributable to 118 business ceded by United States domiciled ceding insurers to any 119 member of the group; 120 (B) For reinsurance ceded under reinsurance agreements with 121 an inception date on or before July 31, 1995, and not amended or 122 renewed after that date, notwithstanding the other provisions of 123 this section, the trust consists of a trusteed account in an 124 amount not less than the group’s several insurance and 125 reinsurance liabilities attributable to business written in the 126 United States; and 127 (C) In addition to these trusts, the group shall maintain 128 in trust a trusteed surplus of which $100 million must be held 129 jointly for the benefit of the United States domiciled ceding 130 insurers of any member of the group for all years of account. 131 (II) The incorporated members of the group must not be 132 engaged in any business other than underwriting of a member of 133 the group, and are subject to the same level of regulation and 134 solvency control by the group’s domiciliary regulator as the 135 unincorporated members. 136 (III) Within 90 days after its financial statements are due 137 to be filed with the group’s domiciliary regulator, the group 138 shall provide to the insurance regulator an annual certification 139 by the group’s domiciliary regulator of the solvency of each 140 underwriter member or, if a certification is unavailable, 141 financial statements, prepared by independent public 142 accountants, of each underwriter member of the group. 143 (e) If the reinsurance is ceded to an assuming insurer not 144 meeting the requirements of paragraph (a), paragraph (b), 145 paragraph (c), or paragraph (d), the officecommissionermay 146 allow credit, but only if the assuming insurer holds surplus in 147 excess of $250 million and has a secure financial strength 148 rating from at least two statistical rating organizations deemed 149 acceptable by the officecommissioneras having experience and 150 expertise in rating insurers doing business in Florida, 151 including, but not limited to, Standard & Poor’s, Moody’s 152 Investors Service, Fitch Ratings, A.M. Best Company, and 153 Demotech. In determining whether credit should be allowed, the 154 officecommissionershall consider the following: 155 1. The domiciliary regulatory jurisdiction of the assuming 156 insurer. 157 2. The structure and authority of the domiciliary regulator 158 with regard to solvency regulation requirements and the 159 financial surveillance of the reinsurer. 160 3. The substance of financial and operating standards for 161 reinsurers in the domiciliary jurisdiction. 162 4. The form and substance of financial reports required to 163 be filed by the reinsurers in the domiciliary jurisdiction or 164 other public financial statements filed in accordance with 165 generally accepted accounting principles. 166 5. The domiciliary regulator’s willingness to cooperate 167 with United States regulators in general and the office in 168 particular. 169 6. The history of performance by reinsurers in the 170 domiciliary jurisdiction. 171 7. Any documented evidence of substantial problems with the 172 enforcement of valid United States judgments in the domiciliary 173 jurisdiction. 174 8. Any other matters deemed relevant by the office 175commissioner. The officecommissionershall give appropriate 176 consideration to insurer group ratings that may have been 177 issued. The officecommissionermay, in lieu of granting full 178 credit under this subsection, reduce the amount required to be 179 held in trust under paragraph (c). 180 (f) If the assuming insurer is not authorized or accredited 181 to transact insurance or reinsurance in this state pursuant to 182 paragraph (a) or paragraph (b), the credit permitted by 183 paragraph (c) or paragraph (d) must not be allowed unless the 184 assuming insurer agrees in the reinsurance agreements: 185 1.a. That in the event of the failure of the assuming 186 insurer to perform its obligations under the terms of the 187 reinsurance agreement, the assuming insurer, at the request of 188 the ceding insurer, shall submit to the jurisdiction of any 189 court of competent jurisdiction in any state of the United 190 States, will comply with all requirements necessary to give the 191 court jurisdiction, and will abide by the final decision of the 192 court or of any appellate court in the event of an appeal; and 193 b. To designate the Chief Financial Officer, pursuant to s. 194 48.151,or a designated attorneyas its true and lawful attorney 195 upon whom may be served any lawful process in any action, suit, 196 or proceeding instituted by or on behalf of the ceding company. 197 2. This paragraph is not intended to conflict with or 198 override the obligation of the parties to a reinsurance 199 agreement to arbitrate their disputes, if this obligation is 200 created in the agreement. 201 (4) Credit must be allowed when the reinsurance is ceded to 202 an assuming insurer meeting the requirements of this subsection. 203 (a) The assuming insurer must be licensed in, and have its 204 head office in or be domiciled in, as applicable, a reciprocal 205 jurisdiction. As used in this subsection, the term “reciprocal 206 jurisdiction” means a jurisdiction that is any of the following: 207 1. A non-United States jurisdiction that is subject to an 208 in-force covered agreement with the United States, each within 209 its legal authority; or, in the case of a covered agreement 210 between the United States and the European Union, a jurisdiction 211 that is a member state of the European Union. As used in this 212 subsection, the term “covered agreement” means an agreement 213 entered into pursuant to the Dodd-Frank Wall Street Reform and 214 Consumer Protection Act, 31 U.S.C. ss. 313 and 314, which is 215 currently in effect or in a period of provisional application 216 and which addresses the elimination, under specified conditions, 217 of collateral requirements as a condition for entering into any 218 reinsurance agreement with a ceding insurer domiciled in this 219 state or for allowing the ceding insurer to recognize credit for 220 reinsurance. 221 2. A United States jurisdiction that meets the requirements 222 for accreditation under the Financial Regulation Standards and 223 Accreditation Program of the National Association of Insurance 224 Commissioners. 225 3. A qualified jurisdiction, as determined by the office, 226 which is not otherwise described in subparagraph 1. or 227 subparagraph 2. and which meets all of the following additional 228 requirements, consistent with the terms and conditions of in 229 force covered agreements, as specified by commission rule: 230 a. The jurisdiction allows an insurer domiciled, or having 231 its head office, in the jurisdiction to take credit for 232 reinsurance ceded to an insurer domiciled in the United States 233 in the same manner as reinsurance ceded to insurers domiciled in 234 that jurisdiction. 235 b. The jurisdiction does not require an assuming insurer 236 domiciled in the United States to establish or maintain a local 237 presence as a condition for entering into a reinsurance 238 agreement with any ceding insurer subject to regulation by the 239 jurisdiction or as a condition for allowing the ceding insurer 240 to take credit for the ceded risk. 241 c. The jurisdiction provides written confirmation that it 242 recognizes the state regulatory approach to group supervision 243 and group capital and that insurers and insurance groups 244 domiciled, or maintaining their headquarters, in a jurisdiction 245 accredited by the National Association of Insurance 246 Commissioners are subject only to worldwide prudential insurance 247 group supervision by the domiciliary state and are not subject 248 to group supervision at the level of the worldwide parent 249 undertaking of the insurance or reinsurance group by the 250 qualified jurisdiction. 251 d. The jurisdiction provides written confirmation that 252 information regarding insurers and their parent, subsidiary, or 253 affiliated entities shall be provided to the office in 254 accordance with a memorandum of understanding or similar 255 document between the office and such qualified jurisdiction. 256 257 The office shall timely publish on its website a list of 258 reciprocal jurisdictions. The office may remove a reciprocal 259 jurisdiction determined to no longer meet the requirements of 260 this paragraph. 261 (b)1. The assuming insurer must have and maintain on an 262 ongoing basis minimum capital and surplus, or its equivalent, 263 calculated according to the methodology of its domiciliary 264 jurisdiction, in the amount of $250 million or in a greater 265 amount specified by commission rule. 266 2. If the assuming insurer is an association, including 267 incorporated and individual unincorporated underwriters, it must 268 have and maintain on an ongoing basis: 269 a. Minimum capital and surplus equivalents, or net of 270 liabilities, calculated according to the methodology applicable 271 in its domiciliary jurisdiction, in the amount of $250 million 272 or in a greater amount specified by commission rule. 273 b. A central fund containing a balance of $250 million or a 274 greater amount specified by commission rule. 275 (c) If credit is allowed for reinsurance ceded to the 276 assuming insurer pursuant to: 277 1. Subparagraph (a)1., the assuming insurer must maintain a 278 minimum solvency or capital ratio specified in the applicable 279 covered agreement. 280 2. Subparagraph (a)2., the assuming insurer must maintain a 281 risk-based capital ratio of 300 percent of the authorized 282 control level, calculated in accordance with s. 624.4085. 283 3. Subparagraph (a)3., the assuming insurer must maintain a 284 solvency or capital ratio determined by the office to be an 285 effective measure of solvency. 286 (d) The assuming insurer must, in a form specified by the 287 commission: 288 1. Agree to provide prompt written notice and explanation 289 to the office if the assuming insurer falls below the minimum 290 requirements set forth in paragraph (b) or paragraph (c), or if 291 any regulatory action is taken against it for serious 292 noncompliance with applicable law of any jurisdiction. 293 2. Consent in writing to the jurisdiction of the courts of 294 this state and to the designation of the Chief Financial 295 Officer, pursuant to s. 48.151, as its true and lawful attorney 296 upon whom may be served any lawful process in any action, suit, 297 or proceeding instituted by or on behalf of the ceding insurer. 298 This subparagraph does not limit or alter in any way the 299 capacity of parties to a reinsurance agreement to agree to an 300 alternative dispute resolution mechanism, except to the extent 301 that such agreement is unenforceable under applicable insolvency 302 or delinquency laws. 303 3. Consent in writing to pay all final judgments, wherever 304 enforcement is sought, obtained by a ceding insurer or its legal 305 successor which have been declared enforceable in the 306 jurisdiction where the judgment was obtained. 307 4. Confirm in writing that it will include in each 308 reinsurance agreement a provision requiring the assuming insurer 309 to provide security in an amount equal to 100 percent of the 310 assuming insurer’s liabilities attributable to reinsurance ceded 311 pursuant to that agreement, if the assuming insurer resists 312 enforcement of a final judgment that is enforceable under the 313 law of the jurisdiction in which it was obtained or enforcement 314 of a properly enforceable arbitration award, whether obtained by 315 the ceding insurer or by its legal successor on behalf of its 316 resolution estate. 317 5. Confirm in writing that it is not presently 318 participating in any solvent scheme of arrangement which 319 involves this state’s ceding insurers, and agree to notify the 320 ceding insurer and the office and to provide security in an 321 amount equal to 100 percent of the assuming insurer’s 322 liabilities to the ceding insurer if the assuming insurer enters 323 into such a solvent scheme of arrangement. Such security must be 324 consistent with subsection (5) or as specified by commission 325 rule. 326 (e) If requested by the office, the assuming insurer or its 327 legal successor must provide, on behalf of itself and any legal 328 predecessors, the following additional documentation: 329 1. The assuming insurer’s annual audited financial 330 statements, for the 2-year period before entering into the 331 reinsurance agreement and on an annual basis thereafter, in 332 accordance with the applicable law of the jurisdiction of its 333 head office or domiciliary jurisdiction, as applicable, 334 including the external audit report. 335 2. The solvency and financial condition report or actuarial 336 opinion, if filed with the assuming insurer’s supervisor, for 337 the 2-year period before entering into the reinsurance 338 agreement. 339 3. Before entering into the reinsurance agreement and not 340 more than semiannually thereafter, an updated list of all 341 disputed and overdue reinsurance claims outstanding for 90 days 342 or more regarding reinsurance assumed from ceding insurers 343 domiciled in the United States. 344 4. Before entering into the reinsurance agreement and not 345 more than semiannually thereafter, information regarding the 346 assuming insurer’s assumed reinsurance by ceding insurer, ceded 347 reinsurance by the assuming insurer, and reinsurance recoverable 348 on paid and unpaid losses by the assuming insurer. 349 5. Additional information as reasonably required by the 350 office. 351 (f) The assuming insurer must maintain a practice of prompt 352 payment of claims under reinsurance agreements and must report 353 to the office reinsurance recoverables that are more than 90 354 days overdue or that are in dispute, as specified by commission 355 rule. 356 (g) The assuming insurer must annually provide to the 357 office confirmation from its reciprocal jurisdiction, on a form 358 adopted by the commission or as otherwise specified by 359 commission rule, that, as of the preceding December 31 or as of 360 the annual date otherwise statutorily reported to the reciprocal 361 jurisdiction, the assuming insurer complied with the 362 requirements of paragraphs (b) and (c). 363 (h) This subsection does not preclude an assuming insurer 364 from providing the office with information on a voluntary basis. 365 (i) If subject to a legal process of rehabilitation, 366 liquidation, or conservation, as applicable, the ceding insurer 367 or its representative may seek and, if determined appropriate by 368 the court in which the proceedings are pending, obtain an order 369 requiring that the assuming insurer post security for all 370 outstanding ceded liabilities. 371 (j) This subsection does not limit or alter in any way the 372 capacity of parties to a reinsurance agreement to agree on 373 requirements for security or other terms in the reinsurance 374 agreement, except as expressly prohibited by this section or 375 other applicable law or commission rule. 376 (k)1. Credit may be taken under this subsection only for 377 reinsurance agreements entered into, amended, or renewed on or 378 after the date on which the assuming insurer has satisfied the 379 requirements to assume reinsurance under this subsection, and 380 only with respect to losses incurred and reserves reported on or 381 after the later of the date on which the assuming insurer has 382 met all eligibility requirements pursuant to this subsection or 383 the effective date of the new reinsurance agreement, amendment, 384 or renewal. 385 2. This paragraph does not alter or impair a ceding 386 insurer’s right to take credit for reinsurance for which, and to 387 the extent that, credit is not available under this subsection, 388 if the reinsurance qualifies for credit under any other 389 applicable provision of law or commission rule. 390 3. This subsection does not authorize an assuming insurer 391 to withdraw or reduce the security provided under any 392 reinsurance agreement, except as authorized by the terms of the 393 agreement. 394 4. This subsection does not limit or alter in any way the 395 capacity of parties to any reinsurance agreement to renegotiate 396 the agreement. 397 (l) The office shall timely publish on its website a list 398 of assuming insurers that meet all of the requirements of this 399 subsection. 400 (m) If the office determines that an assuming insurer no 401 longer meets one or more of the requirements of this subsection, 402 the office may revoke or suspend the eligibility of the assuming 403 insurer for recognition under this subsection. 404 1. During the suspension of an assuming insurer’s 405 eligibility, a reinsurance agreement issued, amended, or renewed 406 after the effective date of the suspension does not qualify for 407 credit, except to the extent that the assuming insurer’s 408 obligations under the contract are secured in accordance with 409 subsection (5). 410 2. If an assuming insurer’s eligibility is revoked, a 411 credit for reinsurance may not be granted after the effective 412 date of the revocation with respect to any reinsurance agreement 413 entered into by the assuming insurer, including a reinsurance 414 agreement entered into before the date of revocation, except to 415 the extent that the assuming insurer’s obligations under the 416 contract are secured in a form acceptable to the office and 417 consistent with subsection (5). 418 (5)(4)An asset allowed or a reductiondeductionfrom 419 liability taken for the reinsurance ceded by an insurer to an 420 assuming insurer not meeting the requirements of subsections 421 (2),and(3), and (4) is allowed in an amount not exceeding the 422 liabilities carried by the ceding insurer. The reduction 423deductionmust be in the amount of funds held by or on behalf of 424 the ceding insurer, including funds held in trust for the ceding 425 insurer, under a reinsurance contract with the assuming insurer 426 as security for the payment of obligations thereunder, if the 427 security is held in the United States subject to withdrawal 428 solely by, and under the exclusive control of, the ceding 429 insurer, or, in the case of a trust, held in a qualified United 430 States financial institution, as defined in paragraph (6)(b) 431(5)(b). This security may be in the form of: 432 (a) Cash in United States dollars; 433 (b) Securities listed by the Securities Valuation Office of 434 the National Association of Insurance Commissioners and 435 qualifying as admitted assets pursuant to part II of chapter 436 625; 437 (c) Clean, irrevocable, unconditional letters of credit, 438 issued or confirmed by a qualified United States financial 439 institution, as defined in paragraph (6)(a)(5)(a), effective no 440 later than December 31 of the year for which the filing is made, 441 and in the possession of, or in trust for, the ceding company on 442 or before the filing date of its annual statement; or 443 (d) Any other form of security acceptable to the office. 444 (6)(a)(5)(a)For purposes of paragraph (5)(c)(4)(c)445 regarding letters of credit, a “qualified United States 446 financial institution” means an institution that: 447 1. Is organized or, in the case of a United States office 448 of a foreign banking organization, is licensed under the laws of 449 the United States or any state thereof; 450 2. Is regulated, supervised, and examined by United States 451 or state authorities having regulatory authority over banks and 452 trust companies; and 453 3. Has been determined by either the office or the 454 Securities Valuation Office of the National Association of 455 Insurance Commissioners to meet such standards of financial 456 condition and standing as are considered necessary and 457 appropriate to regulate the quality of financial institutions 458 whose letters of credit will be acceptable to the office. 459 (12)(11)460 (b) The summary statement must be signed and attested to by 461 either the chief executive officer or the chief financial 462 officer of the reporting insurer. In addition to the summary 463 statement, the office may require the filing of any supporting 464 information relating to the ceding of such risks as it deems 465 necessary. If the summary statement prepared by the ceding 466 insurer discloses that the net effect of a reinsurance treaty or 467 treaties (or series of treaties with one or more affiliated 468 reinsurers entered into for the purpose of avoiding the 469 following threshold amount) at any time results in an increase 470 of more than 25 percent to the insurer’s surplus as to 471 policyholders, then the insurer shall certify in writing to the 472 office that the relevant reinsurance treaty or treaties comply 473 with the accounting requirements contained in any rule adopted 474 by the commission under subsection (15)(14). If such 475 certificate is filed after the summary statement of such 476 reinsurance treaty or treaties, the insurer shall refile the 477 summary statement with the certificate. In any event, the 478 certificate must state that a copy of the certificate was sent 479 to the reinsurer under the reinsurance treaty. 480 Section 2. This act shall take effect July 1, 2021.