Bill Text: FL S1376 | 2020 | Regular Session | Introduced
Bill Title: Credit For Reinsurance
Spectrum: Partisan Bill (Republican 2-0)
Status: (Engrossed - Dead) 2020-03-14 - Died on Calendar [S1376 Detail]
Download: Florida-2020-S1376-Introduced.html
Florida Senate - 2020 SB 1376 By Senator Broxson 1-00904A-20 20201376__ 1 A bill to be entitled 2 An act relating to credit for reinsurance; amending s. 3 624.610, F.S.; adding conditions under which a ceding 4 insurer must be allowed credit for reinsurance; 5 defining the terms “reciprocal jurisdiction” and 6 “covered agreement”; specifying requirements for 7 assuming insurers and reinsurance agreements; 8 requiring the Financial Services Commission to adopt 9 certain rules; authorizing a ceding insurer or its 10 representative that is subject to rehabilitation, 11 liquidation, or conservation to seek a certain court 12 order; specifying a limitation on credit taken by a 13 ceding insurer; authorizing the Office of Insurance 14 Regulation to revoke or suspend an assuming insurer’s 15 eligibility under certain conditions; providing 16 construction; deleting an obsolete provision; 17 conforming provisions to changes made by the act; 18 making technical changes; providing an effective date. 19 20 Be It Enacted by the Legislature of the State of Florida: 21 22 Section 1. Present subsections (4) through (14) of section 23 624.610, Florida Statutes, are redesignated as subsections (5) 24 through (15), respectively, a new subsection (4) is added to 25 that section, and subsection (2), paragraphs (c) and (e) of 26 subsection (3), present subsections (4) and (15), paragraph (a) 27 of present subsection (5), and paragraph (b) of present 28 subsection (11) are amended, to read: 29 624.610 Reinsurance.— 30 (2) Credit for reinsurance must be allowed a ceding insurer 31 as either an asset or a deduction from liability on account of 32 reinsurance ceded only when the reinsurer meets the requirements 33 of paragraph (3)(a), paragraph (3)(b),orparagraph (3)(c), or 34 subsection (4). Credit must be allowed under paragraph (3)(a) or 35 paragraph (3)(b) only for cessions of those kinds or lines of 36 business that the assuming insurer is licensed, authorized, or 37 otherwise permitted to write or assume in its state of domicile 38 or, in the case of a United States branch of an alien assuming 39 insurer, in the state through which it is entered and licensed 40 or authorized to transact insurance or reinsurance. 41 (3) 42 (c)1. Credit must be allowed when the reinsurance is ceded 43 to an assuming insurer that maintains a trust fund in a 44 qualified United States financial institution, as defined in 45 paragraph (6)(b)(5)(b), for the payment of the valid claims of 46 its United States ceding insurers and their assigns and 47 successors in interest. To enable the office to determine the 48 sufficiency of the trust fund, the assuming insurer shall report 49 annually to the office information substantially the same as 50 that required to be reported on the NAIC Annual Statement form 51 by authorized insurers. The assuming insurer shall submit to 52 examination of its books and records by the office and bear the 53 expense of examination. 54 2.a. Credit for reinsurance must not be granted under this 55 subsection unless the form of the trust and any amendments to 56 the trust have been approved by: 57 (I) The insurance regulator of the state in which the trust 58 is domiciled; or 59 (II) The insurance regulator of another state who, pursuant 60 to the terms of the trust instrument, has accepted principal 61 regulatory oversight of the trust. 62 b. The form of the trust and any trust amendments must be 63 filed with the insurance regulator of every state in which the 64 ceding insurer beneficiaries of the trust are domiciled. The 65 trust instrument must provide that contested claims are valid 66 and enforceable upon the final order of any court of competent 67 jurisdiction in the United States. The trust must vest legal 68 title to its assets in its trustees for the benefit of the 69 assuming insurer’s United States ceding insurers and their 70 assigns and successors in interest. The trust and the assuming 71 insurer are subject to examination as determined by the 72 insurance regulator. 73 c. The trust remains in effect for as long as the assuming 74 insurer has outstanding obligations due under the reinsurance 75 agreements subject to the trust. No later than February 28 of 76 each year, the trustee of the trust shall report to the 77 insurance regulator in writing the balance of the trust and list 78 the trust’s investments at the preceding year end, and shall 79 certify that the trust will not expire prior to the following 80 December 31. 81 3. The following requirements apply to the following 82 categories of assuming insurer: 83 a. The trust fund for a single assuming insurer consists of 84 funds in trust in an amount not less than the assuming insurer’s 85 liabilities attributable to reinsurance ceded by United States 86 ceding insurers, and, in addition, the assuming insurer shall 87 maintain a trusteed surplus of not less than $20 million. Not 88 less than 50 percent of the funds in the trust covering the 89 assuming insurer’s liabilities attributable to reinsurance ceded 90 by United States ceding insurers and trusteed surplus shall 91 consist of assets of a quality substantially similar to that 92 required in part II of chapter 625. Clean, irrevocable, 93 unconditional, and evergreen letters of credit, issued or 94 confirmed by a qualified United States financial institution, as 95 defined in paragraph (6)(a)(5)(a), effective no later than 96 December 31 of the year for which the filing is made and in the 97 possession of the trust on or before the filing date of its 98 annual statement, may be used to fund the remainder of the trust 99 and trusteed surplus. 100 b.(I) In the case of a group including incorporated and 101 individual unincorporated underwriters: 102 (A) For reinsurance ceded under reinsurance agreements with 103 an inception, amendment, or renewal date on or after August 1, 104 1995, the trust consists of a trusteed account in an amount not 105 less than the group’s several liabilities attributable to 106 business ceded by United States domiciled ceding insurers to any 107 member of the group; 108 (B) For reinsurance ceded under reinsurance agreements with 109 an inception date on or before July 31, 1995, and not amended or 110 renewed after that date, notwithstanding the other provisions of 111 this section, the trust consists of a trusteed account in an 112 amount not less than the group’s several insurance and 113 reinsurance liabilities attributable to business written in the 114 United States; and 115 (C) In addition to these trusts, the group shall maintain 116 in trust a trusteed surplus of which $100 million must be held 117 jointly for the benefit of the United States domiciled ceding 118 insurers of any member of the group for all years of account. 119 (II) The incorporated members of the group must not be 120 engaged in any business other than underwriting of a member of 121 the group, and are subject to the same level of regulation and 122 solvency control by the group’s domiciliary regulator as the 123 unincorporated members. 124 (III) Within 90 days after its financial statements are due 125 to be filed with the group’s domiciliary regulator, the group 126 shall provide to the insurance regulator an annual certification 127 by the group’s domiciliary regulator of the solvency of each 128 underwriter member or, if a certification is unavailable, 129 financial statements, prepared by independent public 130 accountants, of each underwriter member of the group. 131 (e) If the reinsurance is ceded to an assuming insurer not 132 meeting the requirements of paragraph (a), paragraph (b), 133 paragraph (c), or paragraph (d), the officecommissionermay 134 allow credit, but only if the assuming insurer holds surplus in 135 excess of $250 million and has a secure financial strength 136 rating from at least two statistical rating organizations deemed 137 acceptable by the officecommissioneras having experience and 138 expertise in rating insurers doing business in Florida, 139 including, but not limited to, Standard & Poor’s, Moody’s 140 Investors Service, Fitch Ratings, A.M. Best Company, and 141 Demotech. In determining whether credit should be allowed, the 142 officecommissionershall consider the following: 143 1. The domiciliary regulatory jurisdiction of the assuming 144 insurer. 145 2. The structure and authority of the domiciliary regulator 146 with regard to solvency regulation requirements and the 147 financial surveillance of the reinsurer. 148 3. The substance of financial and operating standards for 149 reinsurers in the domiciliary jurisdiction. 150 4. The form and substance of financial reports required to 151 be filed by the reinsurers in the domiciliary jurisdiction or 152 other public financial statements filed in accordance with 153 generally accepted accounting principles. 154 5. The domiciliary regulator’s willingness to cooperate 155 with United States regulators in general and the office in 156 particular. 157 6. The history of performance by reinsurers in the 158 domiciliary jurisdiction. 159 7. Any documented evidence of substantial problems with the 160 enforcement of valid United States judgments in the domiciliary 161 jurisdiction. 162 8. Any other matters deemed relevant by the office 163commissioner. The officecommissionershall give appropriate 164 consideration to insurer group ratings that may have been 165 issued. The officecommissionermay, in lieu of granting full 166 credit under this subsection, reduce the amount required to be 167 held in trust under paragraph (c). 168 (4) Credit must be allowed when the reinsurance is ceded to 169 an assuming insurer meeting the requirements of this subsection. 170 (a) The assuming insurer must be licensed in, and have its 171 head office in or be domiciled in, as applicable, a reciprocal 172 jurisdiction. As used in this subsection, the term “reciprocal 173 jurisdiction” means a jurisdiction that is any of the following: 174 1. A non-United States jurisdiction that is subject to an 175 in-force covered agreement with the United States, each within 176 its legal authority; or, in the case of a covered agreement 177 between the United States and the European Union, a jurisdiction 178 that is a member state of the European Union. As used in this 179 paragraph, the term “covered agreement” means an agreement 180 entered into pursuant to the Dodd-Frank Wall Street Reform and 181 Consumer Protection Act, 31 U.S.C. ss. 313 and 314, which is 182 currently in effect or in a period of provisional application 183 and which addresses the elimination, under specified conditions, 184 of collateral requirements as a condition for entering into any 185 reinsurance agreement with a ceding insurer domiciled in this 186 state or for allowing the ceding insurer to recognize credit for 187 reinsurance. 188 2. A United States jurisdiction that meets the requirements 189 for accreditation under the Financial Regulation Standards and 190 Accreditation Program of the National Association of Insurance 191 Commissioners. 192 3. A qualified jurisdiction, as determined by the office, 193 which is not otherwise described in subparagraph 1. or 194 subparagraph 2. and which meets certain additional requirements, 195 consistent with the terms and conditions of in-force covered 196 agreements, as specified by commission rule. 197 (b) The assuming insurer must have and maintain on an 198 ongoing basis minimum capital and surplus, or its equivalent, 199 calculated according to the methodology of its domiciliary 200 jurisdiction, in an amount specified by commission rule. If the 201 assuming insurer is an association, including incorporated and 202 individual unincorporated underwriters, it must have and 203 maintain on an ongoing basis minimum capital and surplus 204 equivalents (net of liabilities) calculated according to the 205 methodology applicable in its domiciliary jurisdiction, and a 206 central fund containing a balance in amounts specified by 207 commission rule. 208 (c) The assuming insurer must have and maintain on an 209 ongoing basis a minimum solvency or capital ratio, as 210 applicable, as specified by commission rule. If the assuming 211 insurer is an association, including incorporated and individual 212 unincorporated underwriters, it must have and maintain on an 213 ongoing basis a minimum solvency or capital ratio in the 214 reciprocal jurisdiction where the assuming insurer is licensed 215 and has its head office or where it is domiciled, as applicable. 216 (d) The assuming insurer must agree and provide adequate 217 assurance to the office, in a form specified by the commission, 218 of all of the following: 219 1. Prompt written notice and explanation to the office if 220 the assuming insurer falls below the minimum requirements set 221 forth in paragraph (b) or paragraph (c), or if any regulatory 222 action is taken against it for serious noncompliance with 223 applicable law. 224 2. The assuming insurer’s written consent to the 225 jurisdiction of the courts of this state and designation of the 226 Chief Financial Officer, pursuant to s. 48.151, or of a 227 designated attorney as its true and lawful attorney upon whom 228 may be served any lawful process in any action, suit, or 229 proceeding instituted by or on behalf of the ceding company. 230 This subparagraph does not limit or alter the capacity of 231 parties to a reinsurance agreement to agree to an alternative 232 dispute resolution mechanism, except to the extent that such 233 agreements are unenforceable under applicable insolvency or 234 delinquency laws. 235 3. The assuming insurer’s written consent to pay all final 236 judgments, wherever enforcement is sought, obtained by a ceding 237 insurer or its legal successor which have been declared 238 enforceable in the jurisdiction where the judgment was obtained. 239 4. Each reinsurance agreement must include a provision 240 requiring the assuming insurer to provide security in an amount 241 equal to 100 percent of the assuming insurer’s liabilities 242 attributable to reinsurance ceded pursuant to that agreement, if 243 the assuming insurer resists enforcement of a final judgment 244 that is enforceable under the law of the jurisdiction in which 245 it was obtained or of a properly enforceable arbitration award, 246 whether obtained by the ceding insurer or by its legal successor 247 on behalf of its resolution estate. 248 5. The assuming insurer’s confirmation that it is not 249 presently participating in any solvent scheme of arrangement 250 which involves this state’s ceding insurers, and must agree to 251 notify the ceding insurer and the office and to provide security 252 in an amount equal to 100 percent of the assuming insurer’s 253 liabilities to the ceding insurer if the assuming insurer enters 254 into such a solvent scheme of arrangement. Such security must be 255 consistent with subsection (3) and this subsection. 256 (e) If requested by the office, the assuming insurer or its 257 legal successor must provide on behalf of itself and any legal 258 predecessors certain documentation to the office pursuant to 259 criteria set forth by commission rule. 260 (f) The assuming insurer must maintain a practice of prompt 261 payment of claims under reinsurance agreements pursuant to 262 criteria set forth by commission rule. 263 (g) The assuming insurer’s supervisory authority must 264 confirm to the office on an annual basis, on a form adopted by 265 the commission, that, as of the preceding December 31 or at the 266 annual date otherwise statutorily reported to the reciprocal 267 jurisdiction, the assuming insurer complied with the 268 requirements of paragraphs (b) and (c). 269 (h) This subsection does not preclude an assuming insurer 270 from providing the office with information on a voluntary basis. 271 (i) If subject to a legal process of rehabilitation, 272 liquidation, or conservation, as applicable, the ceding insurer 273 or its representative may seek and, if determined appropriate by 274 the court in which the proceedings are pending, obtain an order 275 requiring that the assuming insurer post security for all 276 outstanding ceded liabilities. 277 (j) This subsection does not limit or alter the capacity of 278 parties to a reinsurance agreement to agree on requirements for 279 security or other terms in the reinsurance agreement, except as 280 expressly prohibited by this section or other applicable law or 281 rule of the commission. 282 (k)1. Credit may be taken under this subsection only for 283 reinsurance agreements entered into, amended, or renewed on or 284 after the date on which the assuming insurer has satisfied the 285 requirements to assume reinsurance under this subsection, and 286 only with respect to losses incurred and reserves reported on or 287 after the later of the date on which the assuming insurer has 288 met all eligibility requirements pursuant to this subsection or 289 the effective date of the new reinsurance agreement, amendment, 290 or renewal. 291 2. This paragraph does not alter or impair a ceding 292 insurer’s right to take credit for reinsurance, to the extent 293 that credit is not available under this subsection, if the 294 reinsurance qualifies for credit under any other applicable 295 provision of this section. 296 3. This subsection does not authorize an assuming insurer 297 to withdraw or reduce the security provided under any 298 reinsurance agreement, except as permitted by the terms of the 299 agreement. 300 4. This subsection does not limit or alter the capacity of 301 parties to any reinsurance agreement to renegotiate the 302 agreement. 303 (l) If the office determines that an assuming insurer no 304 longer meets one or more of the requirements under this 305 subsection, the office may revoke or suspend the eligibility of 306 the assuming insurer for recognition under this subsection. 307 1. During the suspension of an assuming insurer’s 308 eligibility, a reinsurance agreement issued, amended, or renewed 309 after the effective date of the suspension does not qualify for 310 credit except to the extent that the assuming insurer’s 311 obligations under the contract are secured in accordance with 312 this subsection. 313 2. If an assuming insurer’s eligibility is revoked, a 314 credit for reinsurance may not be granted after the effective 315 date of the revocation with respect to any reinsurance agreement 316 entered into by the assuming insurer, including a reinsurance 317 agreement entered into before the date of revocation, except to 318 the extent that the assuming insurer’s obligations under the 319 contract are secured in a form acceptable to the office and 320 consistent with this subsection. 321 (5)(4)An asset allowed or a deduction from liability taken 322 for the reinsurance ceded by an insurer to an assuming insurer 323 not meeting the requirements of subsections (2),and(3), and 324 (4) is allowed in an amount not exceeding the liabilities 325 carried by the ceding insurer. The deduction must be in the 326 amount of funds held by or on behalf of the ceding insurer, 327 including funds held in trust for the ceding insurer, under a 328 reinsurance contract with the assuming insurer as security for 329 the payment of obligations thereunder, if the security is held 330 in the United States subject to withdrawal solely by, and under 331 the exclusive control of, the ceding insurer, or, in the case of 332 a trust, held in a qualified United States financial 333 institution, as defined in paragraph (6)(b)(5)(b). This 334 security may be in the form of: 335 (a) Cash in United States dollars; 336 (b) Securities listed by the Securities Valuation Office of 337 the National Association of Insurance Commissioners and 338 qualifying as admitted assets pursuant to part II of chapter 339 625; 340 (c) Clean, irrevocable, unconditional letters of credit, 341 issued or confirmed by a qualified United States financial 342 institution, as defined in paragraph (6)(a)(5)(a), effective no 343 later than December 31 of the year for which the filing is made, 344 and in the possession of, or in trust for, the ceding company on 345 or before the filing date of its annual statement; or 346 (d) Any other form of security acceptable to the office. 347 (6)(a)(5)(a)For purposes of paragraph (5)(c)(4)(c)348 regarding letters of credit, a “qualified United States 349 financial institution” means an institution that: 350 1. Is organized or, in the case of a United States office 351 of a foreign banking organization, is licensed under the laws of 352 the United States or any state thereof; 353 2. Is regulated, supervised, and examined by United States 354 or state authorities having regulatory authority over banks and 355 trust companies; and 356 3. Has been determined by either the office or the 357 Securities Valuation Office of the National Association of 358 Insurance Commissioners to meet such standards of financial 359 condition and standing as are considered necessary and 360 appropriate to regulate the quality of financial institutions 361 whose letters of credit will be acceptable to the office. 362 (12)(11)363 (b) The summary statement must be signed and attested to by 364 either the chief executive officer or the chief financial 365 officer of the reporting insurer. In addition to the summary 366 statement, the office may require the filing of any supporting 367 information relating to the ceding of such risks as it deems 368 necessary. If the summary statement prepared by the ceding 369 insurer discloses that the net effect of a reinsurance treaty or 370 treaties (or series of treaties with one or more affiliated 371 reinsurers entered into for the purpose of avoiding the 372 following threshold amount) at any time results in an increase 373 of more than 25 percent to the insurer’s surplus as to 374 policyholders, then the insurer shall certify in writing to the 375 office that the relevant reinsurance treaty or treaties comply 376 with the accounting requirements contained in any rule adopted 377 by the commission under subsection (15)(14). If such 378 certificate is filed after the summary statement of such 379 reinsurance treaty or treaties, the insurer shall refile the 380 summary statement with the certificate. In any event, the 381 certificate must state that a copy of the certificate was sent 382 to the reinsurer under the reinsurance treaty. 383(15) Any reinsurer approved pursuant to s. 624.610(3)(a)2.,384as such provision existed prior to July 1, 2000, which fails to385obtain accreditation pursuant to this section prior to December38630, 2003, shall have its approval terminated by operation of law387on that date.388 Section 2. This act shall take effect July 1, 2020.