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A BILL TO BE ENTITLED
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AN ACT
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relating to reinsurance financial statement credit and accounting. |
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BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: |
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SECTION 1. Section 492.102(a), Insurance Code, is amended |
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to read as follows: |
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(a) A ceding insurer may be allowed credit for reinsurance |
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ceded, as an asset or as a deduction from liability, only if the |
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reinsurance is ceded to an assuming insurer that: |
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(1) is authorized to engage in the business of |
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insurance or reinsurance in this state; |
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(2) is accredited as a reinsurer in this state, as |
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provided by Section 492.103; [or] |
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(3) subject to Subchapter D, maintains, in a qualified |
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United States financial institution that has been granted the |
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authority to operate with fiduciary powers, a trust fund to pay |
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valid claims of: |
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(A) the assuming insurer's United States |
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policyholders and ceding insurers; and |
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(B) the policyholders' and ceding insurers' |
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assigns and successors in interest; or |
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(4) is determined by the commissioner to meet the |
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requirements of Sections 492.1033-492.1038, as applicable. |
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SECTION 2. Subchapter C, Chapter 492, Insurance Code, is |
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amended by adding Sections 492.1033, 492.1034, 492.1035, 492.1036, |
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492.1037, 492.1038, and 492.1039 to read as follows: |
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Sec. 492.1033. CREDIT ALLOWED FOR CERTAIN CERTIFIED |
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REINSURERS. (a) Credit shall be allowed when the reinsurance is |
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ceded to an assuming insurer that: |
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(1) is certified by the commissioner as a reinsurer in |
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this state; and |
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(2) secures its obligations in accordance with the |
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requirements of this section and Sections 492.1034-492.1038. |
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(b) To be eligible for certification, the assuming insurer |
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must: |
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(1) be domiciled and licensed to transact insurance or |
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reinsurance in a jurisdiction listed as qualified on the list |
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published by the commissioner under Section 492.1035; |
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(2) maintain minimum capital and surplus in an amount |
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required by the commissioner by rule; |
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(3) maintain a financial strength rating from not |
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fewer than two rating agencies determined to be acceptable in |
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accordance with rules adopted by the commissioner; |
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(4) agree to submit to the jurisdiction of any court of |
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competent jurisdiction in any state of the United States; |
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(5) appoint the commissioner as its agent for service |
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of process in this state; |
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(6) provide security for 100 percent of the assuming |
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insurer's liabilities for reinsurance ceded by United States ceding |
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insurers if the assuming insurer resists enforcement of a final |
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judgment of a court of the United States; |
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(7) meet application information filing requirements |
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as established by the commissioner by rule, for the initial |
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application for certification and on an ongoing basis; and |
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(8) satisfy any other requirements for certification |
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required by rule adopted by the commissioner. |
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Sec. 492.1034. CERTAIN ASSOCIATIONS MAY BE CERTIFIED |
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REINSURERS. (a) An association that includes incorporated and |
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individual unincorporated underwriters may be a certified |
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reinsurer under Section 492.1033. To be eligible for certification |
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the association must satisfy the requirements of Section 492.1033 |
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and this section. |
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(b) The association must satisfy minimum capital and |
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surplus requirements through the capital and surplus equivalents, |
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net of liabilities, of the association and its members, that must |
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include a joint central fund, in an amount determined by the |
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commissioner to provide adequate protection, that may be applied to |
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any unsatisfied obligation of the association or any of its |
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members. |
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(c) The incorporated members of the association acting as |
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members of the association may not be engaged in any business other |
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than underwriting and are subject to the same level of regulation |
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and solvency control by the association's domiciliary regulator as |
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are the unincorporated members. |
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(d) Not later than the 90th day after the date the |
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association's financial statements are due to be filed with the |
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association's domiciliary regulator, the association shall provide |
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to the commissioner: |
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(1) an annual certification by the association's |
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domiciliary regulator of the solvency of each underwriter member; |
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or |
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(2) if a certification described by Subdivision (1) is |
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unavailable, financial statements, prepared by independent public |
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accountants, of each underwriter member of the association. |
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Sec. 492.1035. QUALIFIED JURISDICTIONS. (a) The |
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commissioner shall develop and publish a list of qualified |
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jurisdictions in which an assuming insurer may be licensed and |
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domiciled in order to be considered for certification by the |
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commissioner under Section 492.1033 as a certified reinsurer. In |
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developing the list, the commissioner shall consider the list of |
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qualified jurisdictions published through the National Association |
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of Insurance Commissioners committee process. |
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(b) In order to determine whether a jurisdiction of an |
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assuming insurer located outside of the United States is eligible |
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to be recognized as a qualified jurisdiction under Subsection (a), |
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the commissioner shall evaluate the appropriateness and |
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effectiveness of the reinsurance supervisory system of the |
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jurisdiction, both initially and on an ongoing basis, and consider |
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the rights, benefits, and extent of reciprocal recognition afforded |
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by the jurisdiction to reinsurers licensed and domiciled in the |
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United States. |
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(c) In order to be qualified a jurisdiction must agree to |
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share information and cooperate with the commissioner with respect |
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to all certified reinsurers doing business in the jurisdiction. |
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(d) A jurisdiction may not be recognized as a qualified |
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jurisdiction if the commissioner has determined that the |
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jurisdiction does not adequately and promptly enforce final United |
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States judgments and arbitration awards. Additional factors may be |
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considered in the discretion of the commissioner. |
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(e) If the commissioner approves under this section a |
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jurisdiction as qualified that does not appear on the list of |
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qualified jurisdictions published through the National Association |
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of Insurance Commissioners committee process, the commissioner |
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shall provide documentation in accordance with rules adopted by the |
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commissioner. The rules must include a requirement for a |
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thoroughly documented justification of the approval. |
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(f) The commissioner shall include as a qualified |
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jurisdiction under this section a United States jurisdiction that |
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meets the requirement for accreditation under the National |
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Association of Insurance Commissioners financial standards and |
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accreditation program. |
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(g) If a certified reinsurer's domiciliary jurisdiction |
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ceases to be a qualified jurisdiction, the commissioner may suspend |
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the reinsurer's certification indefinitely, instead of revoking |
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the certification. |
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Sec. 492.1036. FINANCIAL REQUIREMENTS FOR CERTIFIED |
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REINSURER. (a) The commissioner shall assign a financial strength |
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rating to each certified reinsurer after considering the financial |
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strength ratings that have been assigned by rating agencies |
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recognized by the commissioner. |
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(b) The commissioner shall publish a list of the ratings |
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assigned under this section for all certified reinsurers. |
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(c) A certified reinsurer shall secure obligations assumed |
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from ceding insurers domiciled in the United States in accordance |
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with the rating assigned by the commissioner under Subsection (a) |
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and in accordance with this section. |
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(d) For a domestic ceding insurer to qualify for full |
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financial statement credit for reinsurance ceded to a certified |
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reinsurer, the certified reinsurer must maintain security: |
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(1) in a form acceptable to the commissioner and |
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consistent with the insurance laws of this state; or |
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(2) in a multibeneficiary trust in accordance with |
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Subchapter D, except as otherwise provided. |
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(e) If a certified reinsurer maintains a trust under |
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Subchapter D to secure its obligations, and chooses to secure its |
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obligations incurred as a certified reinsurer with a |
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multibeneficiary trust, the certified reinsurer shall maintain |
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separate trust accounts for the obligations incurred under |
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reinsurance agreements the certified reinsurer issued or renewed |
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with reduced security as permitted by this section or comparable |
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laws of other United States jurisdictions and for its obligations |
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subject to Subchapter D. It is a condition to the grant of |
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certification under this section that the certified reinsurer has |
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bound itself, by the language of the trust agreement and agreement |
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with the insurance commissioner or other chief insurance regulatory |
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official with principal regulatory oversight over each trust |
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account, to fund, on termination of the trust account, out of the |
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remaining surplus of the trust any deficiency of any other trust |
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account described by this subsection. |
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(f) The minimum trusteed surplus requirements provided in |
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Subchapter D do not apply to a multibeneficiary trust described by |
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this section, except that the trust shall maintain a minimum |
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trusteed surplus of $10,000,000. |
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(g) With respect to obligations incurred by a certified |
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reinsurer under this section, if the security is insufficient, the |
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commissioner: |
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(1) shall reduce the allowable credit by an amount |
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proportionate to the deficiency; and |
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(2) may impose further reductions in allowable credit |
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on finding that there is a material risk that the certified |
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reinsurer's obligations will not be paid in full when due. |
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(h) For purposes of this section, a reinsurer whose |
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certification has been revoked, suspended, or voluntarily |
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surrendered or whose certification status has become inactive for |
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any reason shall be treated as a reinsurer required to secure 100 |
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|
percent of its obligations, except that if the commissioner |
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continues to assign to the reinsurer a higher financial strength |
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rating as permitted by this section, the security requirement does |
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not apply to a reinsurer whose certification has been suspended or |
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whose certification status has become inactive. |
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Sec. 492.1037. CERTIFICATION BY NATIONAL ASSOCIATION OF |
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INSURANCE COMMISSIONERS. If an applicant for certification has |
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been certified as a reinsurer in a National Association of |
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Insurance Commissioners accredited jurisdiction: |
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(1) the commissioner may defer to the accredited |
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jurisdiction's certification and the financial strength rating |
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assigned by that jurisdiction; and |
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(2) the applicant shall be considered to be a |
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certified reinsurer in this state. |
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Sec. 492.1038. SUSPENSION OR REVOCATION OF ACCREDITATION OR |
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CERTIFICATION; INACTIVE STATUS. (a) A certified reinsurer that |
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ceases to assume new business in this state may request to maintain |
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its certification in inactive status to continue to qualify for a |
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reduction in security for in-force business. An inactive certified |
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reinsurer shall continue to comply with all applicable requirements |
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of this section, and the commissioner shall assign a financial |
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strength rating that takes into account, if relevant, the reasons |
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the reinsurer is not assuming new business. |
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(b) If an accredited or certified reinsurer ceases to meet |
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the requirements for accreditation or certification, the |
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commissioner may, after notice and opportunity for hearing, suspend |
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|
or revoke the reinsurer's accreditation or certification. A |
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suspension or revocation may not take effect until after the date of |
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|
the commissioner's order on the hearing, unless: |
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(1) the reinsurer waives its right to hearing; |
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(2) the commissioner's order is based on regulatory |
|
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action by the reinsurer's domiciliary jurisdiction or the voluntary |
|
|
surrender or termination of the reinsurer's eligibility to transact |
|
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insurance or reinsurance business in its domiciliary jurisdiction |
|
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or in the primary certifying state of the reinsurer under this |
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section; or |
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(3) the commissioner finds that an emergency requires |
|
|
immediate action and a court of competent jurisdiction has not |
|
|
stayed the commissioner's action. |
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(c) While a reinsurer's accreditation or certification is |
|
|
suspended, a reinsurance contract issued or renewed after the |
|
|
effective date of the suspension does not qualify for credit except |
|
|
to the extent that the reinsurer's obligations under the contract |
|
|
are secured in accordance with Subchapter D. |
|
|
(d) If a reinsurer's accreditation or certification is |
|
|
revoked, credit for reinsurance may not be granted after the |
|
|
effective date of the revocation except to the extent that the |
|
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reinsurer's obligations under the contract are secured in |
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|
accordance with Section 492.1036 or Subchapter D. |
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Sec. 492.1039. CONCENTRATION RISK. (a) A ceding insurer |
|
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shall manage its reinsurance recoverable proportionate to its book |
|
|
of business. A domestic ceding insurer shall notify the |
|
|
commissioner not later than the 30th day after the date reinsurance |
|
|
recoverable from any single assuming insurer, or group of |
|
|
affiliated assuming insurers, exceeds or is likely to exceed 50 |
|
|
percent of the domestic ceding insurer's last reported surplus to |
|
|
policyholders. The notification shall demonstrate that the |
|
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exposure is safely managed by the domestic ceding insurer. |
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(b) A ceding insurer shall diversify its reinsurance |
|
|
program. A domestic ceding insurer shall notify the commissioner |
|
|
not later than the 30th day after the date the insurer cedes to any |
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|
single assuming insurer, or group of affiliated assuming insurers, |
|
|
an amount that exceeds or is likely to exceed 20 percent of the |
|
|
ceding insurer's gross written premium in the prior calendar year. |
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The notification shall demonstrate that the exposure is safely |
|
|
managed by the domestic ceding insurer. |
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SECTION 3. Section 492.151, Insurance Code, is amended to |
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|
read as follows: |
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Sec. 492.151. APPLICABILITY OF SUBCHAPTER. This subchapter |
|
|
applies to: |
|
|
(1) a trust that is used to qualify for a reinsurance |
|
|
credit under Section 492.102(a)(3) and as described by Sections |
|
|
492.1036(e) and (f); and |
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|
(2) [to] the assuming insurer that maintains the trust |
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fund. |
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SECTION 4. Section 492.152, Insurance Code, is amended by |
|
|
amending Subsection (a) and adding Subsection (a-1) to read as |
|
|
follows: |
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|
(a) If the assuming insurer is a single insurer, the trust |
|
|
must: |
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|
(1) consist of a trusteed account representing the |
|
|
assuming insurer's liabilities attributable to business written in |
|
|
the United States; and |
|
|
(2) include a trusteed surplus of at least $20 |
|
|
million, except after the assuming insurer has permanently |
|
|
discontinued underwriting new business secured by the trust for not |
|
|
less than three calendar years, the insurance commissioner or other |
|
|
chief insurance regulatory official with principal regulatory |
|
|
oversight over the trust may authorize a reduction in the required |
|
|
trusteed surplus, but only after a finding, based on an assessment |
|
|
of the risk, that the new required surplus level is adequate for the |
|
|
protection of United States ceding insurers, policyholders, and |
|
|
claimants in light of reasonably foreseeable adverse loss |
|
|
development. |
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(a-1) The risk assessment described by Subsection (a)(2) |
|
|
may involve an actuarial review, including an independent analysis |
|
|
of reserves and cash flows, and must consider all material risk |
|
|
factors, including when applicable, the lines of business involved, |
|
|
the stability of the 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 percent of the assuming insurer's |
|
|
liabilities attributable to reinsurance ceded by United States |
|
|
ceding insurers. |
|
|
SECTION 5. Section 492.155(b), Insurance Code, is amended |
|
|
to read as follows: |
|
|
(b) To enable the commissioner to determine the sufficiency |
|
|
of the trust fund under Section 492.102(a)(3) and for purposes of |
|
|
Sections 492.1036(e) and (f), the assuming insurer shall report to |
|
|
the department not later than March 1 of each year information |
|
|
substantially the same as the information required to be reported |
|
|
by an authorized insurer on the National Association of Insurance |
|
|
Commissioners' Annual Statement form. |
|
|
SECTION 6. Section 492.156(a), Insurance Code, is amended |
|
|
to read as follows: |
|
|
(a) A ceding insurer may not be allowed credit under Section |
|
|
492.102(a)(3) for reinsurance ceded to an assuming insurer that is |
|
|
not authorized, [or] accredited, or certified to engage in the |
|
|
business of insurance or reinsurance in this state unless the |
|
|
assuming insurer agrees in the reinsurance contract: |
|
|
(1) that, if the assuming insurer fails to perform the |
|
|
assuming insurer's obligations under the reinsurance contract, the |
|
|
assuming insurer, at the request of the ceding insurer, will: |
|
|
(A) submit to the jurisdiction of a court in any |
|
|
state of the United States; |
|
|
(B) comply with all requirements necessary to |
|
|
give the court jurisdiction; and |
|
|
(C) abide by the final decision of that court or, |
|
|
if the court's decision is appealed, of the appellate court; and |
|
|
(2) to designate the commissioner or an attorney as an |
|
|
agent for service of process in any action, suit, or proceeding |
|
|
instituted by or on behalf of the ceding insurer. |
|
|
SECTION 7. Subchapter D, Chapter 492, Insurance Code, is |
|
|
amended by adding Section 492.1561 to read as follows: |
|
|
Sec. 492.1561. CERTAIN TRUSTEED ASSUMING REINSURERS; |
|
|
REQUIREMENTS FOR TRUST AGREEMENTS. (a) In this section, |
|
|
"commissioner" means the insurance commissioner or other chief |
|
|
insurance regulatory official with principal regulatory oversight |
|
|
over the trust. |
|
|
(b) If the assuming insurer does not meet the requirements |
|
|
of Section 492.102(a)(1) or (2), the credit permitted by Section |
|
|
492.102(a)(3) or (4) may not be allowed unless the assuming insurer |
|
|
agrees in the trust agreements that: |
|
|
(1) notwithstanding any other provisions in the trust |
|
|
agreement, the trustee shall comply with an order of the |
|
|
commissioner or a court ordering the trustee to transfer to the |
|
|
commissioner all assets of the trust fund if: |
|
|
(A) the trust fund is inadequate because the |
|
|
trust fund contains an amount that is less than the amount required |
|
|
by this subchapter; or |
|
|
(B) the grantor of the trust has been declared |
|
|
insolvent or placed into receivership, rehabilitation, or |
|
|
liquidation or a similar proceeding under the laws of the grantor's |
|
|
domiciliary state or country; |
|
|
(2) claims in a proceeding described by Subdivision |
|
|
(1)(B) must be filed with the commissioner; |
|
|
(3) the commissioner shall value the claims described |
|
|
by Subdivision (2) and distribute the assets of the trust under the |
|
|
laws of the trust's domiciliary state applicable to the liquidation |
|
|
of a domestic insurance company; |
|
|
(4) if the commissioner determines that all or part of |
|
|
the trust assets are unnecessary to satisfy the claims of the |
|
|
grantor's ceding insurers domiciled in the United States, the |
|
|
commissioner shall return those unnecessary assets to the trustee |
|
|
for distribution in accordance with the trust agreement; and |
|
|
(5) the grantor waives any right available under |
|
|
federal or state law that is inconsistent with this section. |
|
|
SECTION 8. Section 493.102(a), Insurance Code, is amended |
|
|
to read as follows: |
|
|
(a) A ceding insurer may be allowed credit for reinsurance |
|
|
ceded, as an asset or as a deduction from liability, only if the |
|
|
reinsurance is ceded to an assuming insurer that: |
|
|
(1) is authorized to engage in the business of |
|
|
insurance or reinsurance in this state; |
|
|
(2) is accredited as a reinsurer in this state, as |
|
|
provided by Section 493.103; [or] |
|
|
(3) subject to Subchapter D, maintains, in a qualified |
|
|
United States financial institution that has been granted the |
|
|
authority to operate with fiduciary powers, a trust fund to pay |
|
|
valid claims of: |
|
|
(A) the assuming insurer's United States |
|
|
policyholders and ceding insurers; and |
|
|
(B) the policyholders' and ceding insurers' |
|
|
assigns and successors in interest; or |
|
|
(4) is determined by the commissioner to meet the |
|
|
requirements of Sections 493.1033-493.1038, as applicable. |
|
|
SECTION 9. Subchapter C, Chapter 493, Insurance Code, is |
|
|
amended by adding Sections 493.1033, 493.1034, 493.1035, 493.1036, |
|
|
493.1037, 493.1038, and 493.1039 to read as follows: |
|
|
Sec. 493.1033. CREDIT ALLOWED FOR CERTAIN CERTIFIED |
|
|
REINSURERS. (a) Credit shall be allowed when the reinsurance is |
|
|
ceded to an assuming insurer that: |
|
|
(1) is certified by the commissioner as a reinsurer in |
|
|
this state; and |
|
|
(2) secures its obligations in accordance with the |
|
|
requirements of this section and Sections 493.1034-493.1038. |
|
|
(b) To be eligible for certification, the assuming insurer |
|
|
must: |
|
|
(1) be domiciled and licensed to transact insurance or |
|
|
reinsurance in a jurisdiction listed as qualified on the list |
|
|
published by the commissioner under Section 493.1035; |
|
|
(2) maintain minimum capital and surplus in an amount |
|
|
required by the commissioner by rule; |
|
|
(3) maintain a financial strength rating from not |
|
|
fewer than two rating agencies determined to be acceptable in |
|
|
accordance with rules adopted by the commissioner; |
|
|
(4) agree to submit to the jurisdiction of any court of |
|
|
competent jurisdiction in any state of the United States; |
|
|
(5) appoint the commissioner as its agent for service |
|
|
of process in this state; |
|
|
(6) provide security for 100 percent of the assuming |
|
|
insurer's liabilities for reinsurance ceded by United States ceding |
|
|
insurers if the assuming insurer resists enforcement of a final |
|
|
judgment of a court of the United States; |
|
|
(7) meet application information filing requirements |
|
|
as established by the commissioner by rule, for the initial |
|
|
application for certification and on an ongoing basis; and |
|
|
(8) satisfy any other requirements for certification |
|
|
required by rule adopted by the commissioner. |
|
|
Sec. 493.1034. CERTAIN ASSOCIATIONS MAY BE CERTIFIED |
|
|
REINSURERS. (a) An association that includes incorporated and |
|
|
individual unincorporated underwriters may be a certified |
|
|
reinsurer under Section 493.1033. To be eligible for certification |
|
|
the association must satisfy the requirements of Section 493.1033 |
|
|
and this section. |
|
|
(b) The association must satisfy minimum capital and |
|
|
surplus requirements through the capital and surplus equivalents, |
|
|
net of liabilities, of the association and its members, that must |
|
|
include a joint central fund, in an amount determined by the |
|
|
commissioner to provide adequate protection, that may be applied to |
|
|
any unsatisfied obligation of the association or any of its |
|
|
members. |
|
|
(c) The incorporated members of the association acting as |
|
|
members of the association may not be engaged in any business other |
|
|
than underwriting and are subject to the same level of regulation |
|
|
and solvency control by the association's domiciliary regulator as |
|
|
are the unincorporated members. |
|
|
(d) Not later than the 90th day after the date the |
|
|
association's financial statements are due to be filed with the |
|
|
association's domiciliary regulator, the association shall provide |
|
|
to the commissioner: |
|
|
(1) an annual certification by the association's |
|
|
domiciliary regulator of the solvency of each underwriter member; |
|
|
or |
|
|
(2) if a certification described by Subdivision (1) is |
|
|
unavailable, financial statements, prepared by independent public |
|
|
accountants, of each underwriter member of the association. |
|
|
Sec. 493.1035. QUALIFIED JURISDICTIONS. (a) The |
|
|
commissioner shall develop and publish a list of qualified |
|
|
jurisdictions in which an assuming insurer may be licensed and |
|
|
domiciled in order to be considered for certification by the |
|
|
commissioner under Section 493.1033 as a certified reinsurer. In |
|
|
developing the list, the commissioner shall consider the list of |
|
|
qualified jurisdictions published through the National Association |
|
|
of Insurance Commissioners committee process. |
|
|
(b) In order to determine whether a jurisdiction of an |
|
|
assuming insurer located outside of the United States is eligible |
|
|
to be recognized as a qualified jurisdiction under Subsection (a), |
|
|
the commissioner shall evaluate the appropriateness and |
|
|
effectiveness of the reinsurance supervisory system of the |
|
|
jurisdiction, both initially and on an ongoing basis, and consider |
|
|
the rights, benefits, and extent of reciprocal recognition afforded |
|
|
by the jurisdiction to reinsurers licensed and domiciled in the |
|
|
United States. |
|
|
(c) In order to be qualified a jurisdiction must agree to |
|
|
share information and cooperate with the commissioner with respect |
|
|
to all certified reinsurers doing business in the jurisdiction. |
|
|
(d) A jurisdiction may not be recognized as a qualified |
|
|
jurisdiction if the commissioner has determined that the |
|
|
jurisdiction does not adequately and promptly enforce final United |
|
|
States judgments and arbitration awards. Additional factors may be |
|
|
considered in the discretion of the commissioner. |
|
|
(e) If the commissioner approves under this section a |
|
|
jurisdiction as qualified that does not appear on the list of |
|
|
qualified jurisdictions published through the National Association |
|
|
of Insurance Commissioners committee process, the commissioner |
|
|
shall provide documentation in accordance with rules adopted by the |
|
|
commissioner. The rules must include a requirement for a |
|
|
thoroughly documented justification of the approval. |
|
|
(f) The commissioner shall include as a qualified |
|
|
jurisdiction under this section a United States jurisdiction that |
|
|
meets the requirement for accreditation under the National |
|
|
Association of Insurance Commissioners financial standards and |
|
|
accreditation program. |
|
|
(g) If a certified reinsurer's domiciliary jurisdiction |
|
|
ceases to be a qualified jurisdiction, the commissioner may suspend |
|
|
the reinsurer's certification indefinitely, instead of revoking |
|
|
the certification. |
|
|
Sec. 493.1036. FINANCIAL REQUIREMENTS FOR CERTIFIED |
|
|
REINSURER. (a) The commissioner shall assign a financial strength |
|
|
rating to each certified reinsurer after considering the financial |
|
|
strength ratings that have been assigned by rating agencies |
|
|
recognized by the commissioner. |
|
|
(b) The commissioner shall publish a list of the ratings |
|
|
assigned under this section for all certified reinsurers. |
|
|
(c) A certified reinsurer shall secure obligations assumed |
|
|
from ceding insurers domiciled in the United States in accordance |
|
|
with the rating assigned by the commissioner under Subsection (a) |
|
|
and in accordance with this section. |
|
|
(d) For a domestic ceding insurer to qualify for full |
|
|
financial statement credit for reinsurance ceded to a certified |
|
|
reinsurer, the certified reinsurer must maintain security: |
|
|
(1) in a form acceptable to the commissioner and |
|
|
consistent with the insurance laws of this state; or |
|
|
(2) in a multibeneficiary trust in accordance with |
|
|
Subchapter D, except as otherwise provided. |
|
|
(e) If a certified reinsurer maintains a trust under |
|
|
Subchapter D to secure its obligations, and chooses to secure its |
|
|
obligations incurred as a certified reinsurer with a |
|
|
multibeneficiary trust, the certified reinsurer shall maintain |
|
|
separate trust accounts for the obligations incurred under |
|
|
reinsurance agreements the certified reinsurer issued or renewed |
|
|
with reduced security as permitted by this section or comparable |
|
|
laws of other United States jurisdictions and for its obligations |
|
|
subject to Subchapter D. It is a condition to the grant of |
|
|
certification under this section that the certified reinsurer has |
|
|
bound itself, by the language of the trust agreement and agreement |
|
|
with the insurance commissioner or other chief insurance regulatory |
|
|
official with principal regulatory oversight over each trust |
|
|
account, to fund, on termination of the trust account, out of the |
|
|
remaining surplus of the trust any deficiency of any other trust |
|
|
account described by this subsection. |
|
|
(f) The minimum trusteed surplus requirements provided in |
|
|
Subchapter D do not apply to a multibeneficiary trust described by |
|
|
this section, except that the trust shall maintain a minimum |
|
|
trusteed surplus of $10,000,000. |
|
|
(g) With respect to obligations incurred by a certified |
|
|
reinsurer under this section, if the security is insufficient, the |
|
|
commissioner: |
|
|
(1) shall reduce the allowable credit by an amount |
|
|
proportionate to the deficiency; and |
|
|
(2) may impose further reductions in allowable credit |
|
|
on finding that there is a material risk that the certified |
|
|
reinsurer's obligations will not be paid in full when due. |
|
|
(h) For purposes of this section, a reinsurer whose |
|
|
certification has been revoked, suspended, or voluntarily |
|
|
surrendered or whose certification status has become inactive for |
|
|
any reason shall be treated as a reinsurer required to secure 100 |
|
|
percent of its obligations, except that if the commissioner |
|
|
continues to assign to the reinsurer a higher financial strength |
|
|
rating as permitted by this section, the security requirement does |
|
|
not apply to a reinsurer whose certification has been suspended or |
|
|
whose certification status has become inactive. |
|
|
Sec. 493.1037. CERTIFICATION BY NATIONAL ASSOCIATION OF |
|
|
INSURANCE COMMISSIONERS. If an applicant for certification has |
|
|
been certified as a reinsurer in a National Association of |
|
|
Insurance Commissioners accredited jurisdiction: |
|
|
(1) the commissioner may defer to the accredited |
|
|
jurisdiction's certification and the financial strength rating |
|
|
assigned by that jurisdiction; and |
|
|
(2) the applicant shall be considered to be a |
|
|
certified reinsurer in this state. |
|
|
Sec. 493.1038. SUSPENSION OR REVOCATION OF ACCREDITATION OR |
|
|
CERTIFICATION; INACTIVE STATUS. (a) A certified reinsurer that |
|
|
ceases to assume new business in this state may request to maintain |
|
|
its certification in inactive status to continue to qualify for a |
|
|
reduction in security for in-force business. An inactive certified |
|
|
reinsurer shall continue to comply with all applicable requirements |
|
|
of this section, and the commissioner shall assign a financial |
|
|
strength rating that takes into account, if relevant, the reasons |
|
|
the reinsurer is not assuming new business. |
|
|
(b) If an accredited or certified reinsurer ceases to meet |
|
|
the requirements for accreditation or certification, the |
|
|
commissioner may, after notice and opportunity for hearing, suspend |
|
|
or revoke the reinsurer's accreditation or certification. A |
|
|
suspension or revocation may not take effect until after the date of |
|
|
the commissioner's order on the hearing, unless: |
|
|
(1) the reinsurer waives its right to hearing; |
|
|
(2) the commissioner's order is based on regulatory |
|
|
action by the reinsurer's domiciliary jurisdiction or the voluntary |
|
|
surrender or termination of the reinsurer's eligibility to transact |
|
|
insurance or reinsurance business in its domiciliary jurisdiction |
|
|
or in the primary certifying state of the reinsurer under this |
|
|
section; or |
|
|
(3) the commissioner finds that an emergency requires |
|
|
immediate action and a court of competent jurisdiction has not |
|
|
stayed the commissioner's action. |
|
|
(c) While a reinsurer's accreditation or certification is |
|
|
suspended, a reinsurance contract issued or renewed after the |
|
|
effective date of the suspension does not qualify for credit except |
|
|
to the extent that the reinsurer's obligations under the contract |
|
|
are secured in accordance with Subchapter D. |
|
|
(d) If a reinsurer's accreditation or certification is |
|
|
revoked, credit for reinsurance may not be granted after the |
|
|
effective date of the revocation except to the extent that the |
|
|
reinsurer's obligations under the contract are secured in |
|
|
accordance with Section 493.1036 or Subchapter D. |
|
|
Sec. 493.1039. CONCENTRATION RISK. (a) A ceding insurer |
|
|
shall manage its reinsurance recoverable proportionate to its book |
|
|
of business. A domestic ceding insurer shall notify the |
|
|
commissioner not later than the 30th day after the date reinsurance |
|
|
recoverable from any single assuming insurer, or group of |
|
|
affiliated assuming insurers, exceeds or is likely to exceed 50 |
|
|
percent of the domestic ceding insurer's last reported surplus to |
|
|
policyholders. The notification shall demonstrate that the |
|
|
exposure is safely managed by the domestic ceding insurer. |
|
|
(b) A ceding insurer shall diversify its reinsurance |
|
|
program. A domestic ceding insurer shall notify the commissioner |
|
|
not later than the 30th day after the date the insurer cedes to any |
|
|
single assuming insurer, or group of affiliated assuming insurers, |
|
|
an amount that exceeds or is likely to exceed 20 percent of the |
|
|
ceding insurer's gross written premium in the prior calendar year. |
|
|
The notification shall demonstrate that the exposure is safely |
|
|
managed by the domestic ceding insurer. |
|
|
SECTION 10. Section 493.151, Insurance Code, is amended to |
|
|
read as follows: |
|
|
Sec. 493.151. APPLICABILITY OF SUBCHAPTER. This subchapter |
|
|
applies to: |
|
|
(1) a trust that is used to qualify for a reinsurance |
|
|
credit under Section 493.102(a)(3) and as described by Sections |
|
|
493.1036(e) and (f); and |
|
|
(2) [to] the assuming insurer that maintains the trust |
|
|
fund. |
|
|
SECTION 11. Section 493.152, Insurance Code, is amended by |
|
|
amending Subsection (a) and adding Subsection (a-1) to read as |
|
|
follows: |
|
|
(a) If the assuming insurer is a single insurer, the trust |
|
|
must: |
|
|
(1) consist of a trusteed account representing the |
|
|
assuming insurer's liabilities attributable to business written in |
|
|
the United States; and |
|
|
(2) include a trusteed surplus of at least $20 |
|
|
million, except after the assuming insurer has permanently |
|
|
discontinued underwriting new business secured by the trust for not |
|
|
less than three calendar years, the insurance commissioner or other |
|
|
chief insurance regulatory official with principal regulatory |
|
|
oversight over the trust may authorize a reduction in the required |
|
|
trusteed surplus, but only after a finding, based on an assessment |
|
|
of the risk, that the new required surplus level is adequate for the |
|
|
protection of United States ceding insurers, policyholders, and |
|
|
claimants in light of reasonably foreseeable adverse loss |
|
|
development. |
|
|
(a-1) The risk assessment described by Subsection (a)(2) |
|
|
may involve an actuarial review, including an independent analysis |
|
|
of reserves and cash flows, and must consider all material risk |
|
|
factors, including when applicable, the lines of business involved, |
|
|
the stability of the 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 percent of the assuming insurer's |
|
|
liabilities attributable to reinsurance ceded by United States |
|
|
ceding insurers. |
|
|
SECTION 12. Section 493.155(b), Insurance Code, is amended |
|
|
to read as follows: |
|
|
(b) To enable the commissioner to determine the sufficiency |
|
|
of the trust fund under Section 493.102(a)(3) and for purposes of |
|
|
Sections 493.1036(e) and (f), the assuming insurer shall report to |
|
|
the department not later than March 1 of each year information |
|
|
substantially the same as the information required to be reported |
|
|
by an authorized insurer on the National Association of Insurance |
|
|
Commissioners' Annual Statement form. |
|
|
SECTION 13. Section 493.156(a), Insurance Code, is amended |
|
|
to read as follows: |
|
|
(a) A ceding insurer may not be allowed credit under Section |
|
|
493.102(a)(3) for reinsurance ceded to an assuming insurer that is |
|
|
not authorized, [or] accredited, or certified to engage in the |
|
|
business of insurance or reinsurance in this state unless the |
|
|
assuming insurer agrees in the reinsurance contract: |
|
|
(1) that, if the assuming insurer fails to perform the |
|
|
assuming insurer's obligations under the reinsurance contract, the |
|
|
assuming insurer, at the request of the ceding insurer, will: |
|
|
(A) submit to the jurisdiction of a court in any |
|
|
state of the United States; |
|
|
(B) comply with all requirements necessary to |
|
|
give the court jurisdiction; and |
|
|
(C) abide by the final decision of that court or, |
|
|
if the court's decision is appealed, of the appellate court; and |
|
|
(2) to designate the commissioner or an attorney as an |
|
|
agent for service of process in any action, suit, or proceeding |
|
|
instituted by or on behalf of the ceding insurer. |
|
|
SECTION 14. Subchapter D, Chapter 493, Insurance Code, is |
|
|
amended by adding Section 493.1561 to read as follows: |
|
|
Sec. 493.1561. CERTAIN TRUSTEED ASSUMING REINSURERS; |
|
|
REQUIREMENTS FOR TRUST AGREEMENTS. (a) In this section, |
|
|
"commissioner" means the insurance commissioner or other chief |
|
|
insurance regulatory official with principal regulatory oversight |
|
|
over the trust. |
|
|
(b) If the assuming insurer does not meet the requirements |
|
|
of Section 493.102(a)(1) or (2), the credit permitted by Section |
|
|
493.102(a)(3) or (4) may not be allowed unless the assuming insurer |
|
|
agrees in the trust agreements that: |
|
|
(1) notwithstanding any other provisions in the trust |
|
|
agreement, the trustee shall comply with an order of the |
|
|
commissioner or a court ordering the trustee to transfer to the |
|
|
commissioner all assets of the trust fund if: |
|
|
(A) the trust fund is inadequate because the |
|
|
trust fund contains an amount that is less than the amount required |
|
|
by this subchapter; or |
|
|
(B) the grantor of the trust has been declared |
|
|
insolvent or placed into receivership, rehabilitation, or |
|
|
liquidation or a similar proceeding under the laws of the grantor's |
|
|
domiciliary state or country; |
|
|
(2) claims in a proceeding described by Subdivision |
|
|
(1)(B) must be filed with the commissioner; |
|
|
(3) the commissioner shall value the claims described |
|
|
by Subdivision (2) and distribute the assets of the trust under the |
|
|
laws of the trust's domiciliary state applicable to the liquidation |
|
|
of a domestic insurance company; |
|
|
(4) if the commissioner determines that all or part of |
|
|
the trust assets are unnecessary to satisfy the claims of the |
|
|
grantor's ceding insurers domiciled in the United States, the |
|
|
commissioner shall return those unnecessary assets to the trustee |
|
|
for distribution in accordance with the trust agreement; and |
|
|
(5) the grantor waives any right available under |
|
|
federal or state law that is inconsistent with this section. |
|
|
SECTION 15. This Act applies only to a reinsurance contract |
|
|
that is entered into or renewed on or after January 1, 2016. A |
|
|
reinsurance contract that is entered into or renewed before January |
|
|
1, 2016, is governed by the law as it existed immediately before the |
|
|
effective date of this Act, and that law is continued in effect for |
|
|
that purpose. |
|
|
SECTION 16. This Act takes effect September 1, 2015. |