Alabama Administrative Code
Title 482 - ALABAMA DEPARTMENT OF INSURANCE
Chapter 482-1-156 - CREDIT FOR REINSURANCE
Section 482-1-156-.08 - Credit For Reinsurance - Certified Reinsurer
Universal Citation: AL Admin Code R 482-1-156-.08
Current through Register Vol. 42, No. 11, August 30, 2024
(1) Pursuant to Section 27-5B-8, the commissioner shall allow credit for reinsurance ceded by a domestic insurer to an assuming insurer that has been certified as a reinsurer in this state at all times for which statutory financial statement credit for reinsurance is claimed under this rule. The credit allowed shall be based upon the security held by or on behalf of the ceding insurer in accordance with a rating assigned to the certified reinsurer by the commissioner. The security shall be in a form consistent with the provisions of Sections 27-5B-8 and 27-5B-14, and Rules 482-1-156-.11, 482-1-156-.12 or 482-1-156-.13. The amount of security required in order for full credit to be allowed shall correspond with the following requirements:
(a)
|
Ratings |
Security Required |
|
Secure - 1 |
0% |
|
Secure - 2 |
10% |
|
Secure - 3 |
20% |
|
Secure - 4 |
50% |
|
Secure - 5 |
75% |
|
Vulnerable |
- 6 100% |
(b)
Affiliated reinsurance transactions shall receive the same opportunity for
reduced security requirements as all other reinsurance transactions.
(c) The commissioner shall require the
certified reinsurer to post one hundred percent (100%), for the benefit of the
ceding insurer or its estate, security upon the entry of an order of
rehabilitation, liquidation or conservation against the ceding
insurer.
(d) In order to facilitate
the prompt payment of claims, a certified reinsurer shall not be required to
post security for catastrophe recoverables for a period of one year from the
date of the first instance of a liability reserve entry by the ceding company
as a result of a loss from a catastrophic occurrence as recognized by the
commissioner. The one year deferral period is contingent upon the certified
reinsurer continuing to pay claims in a timely manner. Reinsurance recoverables
for only the following lines of business as reported on the NAIC annual
financial statement related specifically to the catastrophic occurrence will be
included in the deferral:
1. Line 1:
Fire
2. Line 2: Allied
Lines
3. Line 3: Farmowners
multiple peril
4. Line 4:
Homeowners multiple peril
5. Line
5: Commercial multiple peril
6.
Line 9: Inland Marine
7. Line 12:
Earthquake
8. Line 21: Auto
physical damage
(e)
Credit for reinsurance under this rule shall apply only to reinsurance
contracts entered into or renewed on or after the effective date of the
certification of the assuming insurer. Any reinsurance contract entered into
prior to the effective date of the certification of the assuming insurer that
is subsequently amended after the effective date of the certification of the
assuming insurer, or a new reinsurance contract, covering any risk for which
collateral was provided previously, shall only be subject to this rule with
respect to losses incurred and reserves reported from and after the effective
date of the amendment or new contract.
(f) Nothing in this rule shall prohibit the
parties to a reinsurance agreement from agreeing to provisions establishing
security requirements that exceed the minimum security requirements established
for certified reinsurers under this rule.
(2) Certification Procedure.
(a) The commissioner shall post notice on the
insurance department's website promptly upon receipt of any application for
certification, including instructions on how members of the public may respond
to the application. The commissioner may not take final action on the
application until at least thirty (30) days after posting the notice required
by this paragraph.
(b) The
commissioner shall issue written notice to an assuming insurer that has made
application and been approved as a certified reinsurer. Included in such notice
shall be the rating assigned the certified reinsurer in accordance with
paragraph (1). The commissioner shall publish a list of all certified
reinsurers and their ratings.
(c)
In order to be eligible for certification, the assuming insurer shall meet the
following requirements:
1. The assuming
insurer must be domiciled and licensed to transact insurance or reinsurance in
a Qualified Jurisdiction, as determined by the commissioner pursuant to
paragraph (3).
2. The assuming
insurer must maintain capital and surplus, or its equivalent, of no less than
$250,000,000 calculated in accordance with subparagraph (d)8. This requirement
may also be satisfied by an association including incorporated and individual
unincorporated underwriters having minimum capital and surplus equivalents (net
of liabilities) of at least $250,000,000 and a central fund containing a
balance of at least $250,000,000.
3. The assuming insurer must maintain
financial strength ratings from two or more rating agencies deemed acceptable
by the commissioner. These ratings shall be based on interactive communication
between the rating agency and the assuming insurer and shall not be based
solely on publicly available information. These financial strength ratings will
be one factor used by the commissioner in determining the rating that is
assigned to the assuming insurer. Acceptable rating agencies include the
following:
(i) Standard &
Poor's.
(ii) Moody's Investors
Service.
(iii) Fitch
Ratings.
(iv) A.M. Best
Company.
(v) Any other Nationally
Recognized Statistical Rating Organization.
4. The certified reinsurer must comply with
any other requirements reasonably imposed by the commissioner.
(d) Each certified
reinsurer shall be rated on a legal entity basis, with due consideration being
given to the group rating where appropriate, except that an association
including incorporated and individual unincorporated underwriters that has been
approved to do business as a single certified reinsurer may be evaluated on the
basis of its group rating. Factors that may be considered as part of the
evaluation process include, but are not limited to, the following:
1. The certified reinsurer's financial
strength rating from an acceptable rating agency. The maximum rating that a
certified reinsurer may be assigned will correspond to its financial strength
rating as outlined in the table below. The commissioner shall use the lowest
financial strength rating received from an approved rating agency in
establishing the maximum rating of a certified reinsurer. A failure to obtain
or maintain at least two financial strength ratings from acceptable rating
agencies will result in loss of eligibility for certification:
|
Ratings |
Best |
S&P |
Moody's |
Fitch |
|
Secure - 1 |
A++ |
AAA |
Aaa |
AAA |
|
Secure - 2 |
A+ |
AA+, AA, AA- |
Aa1, Aa2, Aa3 |
AA+, AA, AA- |
|
Secure - 3 |
A |
A+, A |
A1, A2 |
A+, A |
|
Secure - 4 |
A- |
A- |
A3 |
A- |
|
Secure - 5 |
B++, B+ |
BBB+, BBB, BBB- |
Baa1, Baa2, Baa3 |
BBB+, BBB, BBB- |
|
Vulnerable - 6 |
B, B-, C++, C+, C, C-, D, E, F |
BB+, BB, BB-, B+, B, B-, CCC, CC, C, D, R |
Ba1, Ba2, Ba3, B1, B2, B3, Caa, Ca, C |
BB+, BB, BB-,B+, B, B-, CCC+, CC, CCC-, DD |
2. The
business practices of the certified reinsurer in dealing with its ceding
insurers, including its record of compliance with reinsurance contractual terms
and obligations.
3. For certified
reinsurers domiciled in the U.S., a review of the most recent applicable NAIC
Annual Statement Blank, either Schedule F (for property/casualty reinsurers) or
Schedule S (for life and health reinsurers).
4. For certified reinsurers not domiciled in
the U.S., a review annually of Form CR-F (for property/casualty reinsurers) or
Form CR-S (for life and health reinsurers) (attached as exhibits to this
chapter).
5. The reputation of the
certified reinsurer for prompt payment of claims under reinsurance agreements,
based on an analysis of ceding insurers' Schedule F reporting of overdue
reinsurance recoverables, including the proportion of obligations that are more
than ninety (90) days past due or are in dispute, with specific attention given
to obligations payable to companies that are in administrative supervision or
receivership.
6. Regulatory actions
against the certified reinsurer.
7.
The report of the independent auditor on the financial statements of the
insurance enterprise, on the basis described in subparagraph 8.
8. For certified reinsurers not domiciled in
the U.S., audited financial statements, regulatory filings, and actuarial
opinion (as filed with the non-U.S. jurisdiction supervisor, with a translation
into English). Upon the initial application for certification, the commissioner
will consider audited financial statements for the last two (2) years filed
with its non-U.S. jurisdiction supervisor.
9. The liquidation priority of obligations to
a ceding insurer in the certified reinsurer's domiciliary jurisdiction in the
context of an insolvency proceeding.
10. A certified reinsurer's participation in
any solvent scheme of arrangement, or similar procedure, which involves U.S.
ceding insurers. The commissioner shall receive prior notice from a certified
reinsurer that proposes participation by the certified reinsurer in a solvent
scheme of arrangement.
11. Any
other information deemed relevant by the commissioner.
(e) Based on the analysis conducted under
subparagraph (d)5 of a certified reinsurer's reputation for prompt payment of
claims, the commissioner may make appropriate adjustments in the security the
certified reinsurer is required to post to protect its liabilities to U.S.
ceding insurers, provided that the commissioner shall, at a minimum, increase
the security the certified reinsurer is required to post by one rating level
under subparagraph (d)1 if the commissioner finds either of the following:
1. More than fifteen percent (15%) of the
certified reinsurer's ceding insurance clients have overdue reinsurance
recoverables on paid losses of ninety (90) days or more which are not in
dispute and which exceed $100,000 for each cedent.
2. The aggregate amount of reinsurance
recoverables on paid losses which are not in dispute that are overdue by ninety
(90) days or more exceeds $50,000,000.
(f) The assuming insurer must submit a
properly executed Form CR-1 (attached as an exhibit to this chapter) as
evidence of its submission to the jurisdiction of this state, appointment of
the commissioner as an agent for service of process in this state, and
agreement to provide security for one hundred percent (100%) of the assuming
insurer's liabilities attributable to reinsurance ceded by U.S. ceding insurers
if it resists enforcement of a final U.S. judgment. The commissioner shall not
certify any assuming insurer that is domiciled in a jurisdiction that the
commissioner has determined does not adequately and promptly enforce final U.S.
judgments or arbitration awards.
(g) The certified reinsurer must agree to
meet applicable information filing requirements as determined by the
commissioner, both with respect to an initial application for certification and
on an ongoing basis. All information submitted by certified reinsurers which is
not otherwise public information subject to disclosure shall be exempted from
disclosure under Sections
27-2-15 and
36-12-40, Code of Ala.
1975, and shall be withheld from public disclosure. The applicable
information filing requirements are, as follows:
1. Notification within ten (10) days of any
regulatory actions taken against the certified reinsurer, any change in the
provisions of its domiciliary license or any change in rating by an approved
rating agency, including a statement describing such changes and the reasons
therefore.
2. Annually, Form CR-F
or CR-S, as applicable.
3.
Annually, the report of the independent auditor on the financial statements of
the insurance enterprise, on the basis described in subparagraph 4.
4. Annually, the most recent audited
financial statements, regulatory filings, and actuarial opinion (as filed with
the certified reinsurer's supervisor, with a translation in English). Upon the
initial certification, audited financial statements for the last two (2) years
filed with the certified reinsurer's supervisor.
5. At least annually, an updated list of all
disputed and overdue reinsurance claims regarding reinsurance assumed from U.S.
domestic ceding insurers.
6. A
certification from the certified reinsurer's domestic regulator that the
certified reinsurer is in good standing and maintains capital in excess of the
jurisdiction's highest regulatory action level.
7. Any other information that the
commissioner may reasonably require.
(h) Change in Rating or Revocation of
Certification.
1. In the case of a downgrade
by a rating agency or other disqualifying circumstance, the commissioner shall
upon written notice assign a new rating to the certified reinsurer in
accordance with the requirements of subparagraph (d)1.
2. The commissioner shall have the authority
to suspend, revoke, or otherwise modify a certified reinsurer's certification
at any time if the certified reinsurer fails to meet its obligations or
security requirements under this rule, or if other financial or operating
results of the certified reinsurer, or documented significant delays in payment
by the certified reinsurer, lead the commissioner to reconsider the certified
reinsurer's ability or willingness to meet its contractual
obligations.
3. If the rating of a
certified reinsurer is upgraded by the commissioner, the certified reinsurer
may meet the security requirements applicable to its new rating on a
prospective basis, but the commissioner shall require the certified reinsurer
to post security under the previously applicable security requirements as to
all contracts in force on or before the effective date of the upgraded rating.
If the rating of a certified reinsurer is downgraded by the commissioner, the
commissioner shall require the certified reinsurer to meet the security
requirements applicable to its new rating for all business it has assumed as a
certified reinsurer.
4. Upon
revocation of the certification of a certified reinsurer by the commissioner,
the assuming insurer shall be required to post security in accordance with Rule
482-1-156-.10 in order for the
ceding insurer to continue to take credit for reinsurance ceded to the assuming
insurer. If funds continue to be held in trust in accordance with Rule
482-1-156-.07, the commissioner
may allow additional credit equal to the ceding insurer's pro
rata share of such funds, discounted to reflect the risk of
collectability and anticipated expenses of trust administration.
Notwithstanding the change of a certified reinsurer's rating or revocation of
its certification, a domestic insurer that has ceded reinsurance to that
certified reinsurer may not be denied credit for reinsurance for a period of
three (3) months for all reinsurance ceded to that certified reinsurer, unless
the reinsurance is found by the commissioner to be at high risk of
collectability.
(3) Qualified Jurisdictions.
(a) If, upon conducting an evaluation under
this rule with respect to the reinsurance supervisory system of any non-U.S.
assuming insurer, the commissioner determines that the jurisdiction qualifies
to be recognized as a qualified jurisdiction, the commissioner shall publish
notice and evidence of such recognition in an appropriate manner. The
commissioner may establish a procedure to withdraw recognition of those
jurisdictions that are no longer qualified.
(b) In order to determine whether the
domiciliary jurisdiction of a non-U.S. assuming insurer is eligible to be
recognized as a qualified jurisdiction, the commissioner shall evaluate the
reinsurance supervisory system of the non-U.S. jurisdiction, both initially and
on an ongoing basis, and consider the rights, benefits and the extent of
reciprocal recognition afforded by the non-U.S. jurisdiction to reinsurers
licensed and domiciled in the U.S. The commissioner shall determine the
appropriate approach for evaluating the qualifications of such jurisdictions,
and create and publish a list of jurisdictions whose reinsurers may be approved
by the commissioner as eligible for certification. A qualified jurisdiction
must agree to share information and cooperate with the commissioner with
respect to all certified reinsurers domiciled within that jurisdiction.
Additional factors to be considered in determining whether to recognize a
qualified jurisdiction, in the discretion of the commissioner, include but are
not limited to the following:
1. The framework
under which the assuming insurer is regulated.
2. The structure and authority of the
domiciliary regulator with regard to solvency regulation requirements and
financial surveillance.
3. The
substance of financial and operating standards for assuming insurers in the
domiciliary jurisdiction.
4. The
form and substance of financial reports required to be filed or made publicly
available by reinsurers in the domiciliary jurisdiction and the accounting
principles used.
5. The domiciliary
regulator's willingness to cooperate with U.S. regulators in general and the
commissioner in particular.
6. The
history of performance by assuming insurers in the domiciliary
jurisdiction.
7. Any documented
evidence of substantial problems with the enforcement of final U.S. judgments
in the domiciliary jurisdiction. A jurisdiction will not be considered to be a
qualified jurisdiction if the commissioner has determined that it does not
adequately and promptly enforce final U.S. judgments or arbitration
awards.
8. Any relevant
international standards or guidance with respect to mutual recognition of
reinsurance supervision adopted by the International Association of Insurance
Supervisors or successor organization.
9. Any other matters deemed relevant by the
commissioner.
(c) A list
of qualified jurisdictions shall be published through the NAIC Committee
Process. The commissioner shall consider this list in determining qualified
jurisdictions. If the commissioner approves a jurisdiction as qualified that
does not appear on the list of qualified jurisdictions, the commissioner shall
provide thoroughly documented justification with respect to the criteria
provided under subparagraphs 1. to 9. of paragraph (3)(b).
(d) U.S. jurisdictions that meet the
requirements for accreditation under the NAIC financial standards and
accreditation program shall be recognized as qualified jurisdictions.
(4) Recognition of Certification Issued by an NAIC Accredited Jurisdiction.
(a)
If an applicant for certification has been certified as a reinsurer in an NAIC
accredited jurisdiction, the commissioner has the discretion to defer to that
jurisdiction's certification, and to defer to the rating assigned by that
jurisdiction, if the assuming insurer submits a properly executed Form CR-1 and
such additional information as the commissioner requires. The assuming insurer
shall be considered to be a certified reinsurer in this State.
(b) Any change in the certified reinsurer's
status or rating in the other jurisdiction shall apply automatically in this
State as of the date it takes effect in the other jurisdiction. The certified
reinsurer shall notify the commissioner of any change in its status or rating
within 10 days after receiving notice of the change.
(c) The commissioner may withdraw recognition
of the other jurisdiction's rating at any time and assign a new rating in
accordance with subparagraph (2)(h)1.
(d) The commissioner may withdraw recognition
of the other jurisdiction's certification at any time, with written notice to
the certified reinsurer. Unless the commissioner suspends or revokes the
certified reinsurer's certification in accordance with subparagraph (2)(h)2,
the certified reinsurer's certification shall remain in good standing in this
State for a period of three (3) months, which shall be extended if additional
time is necessary to consider the assuming insurer's application for
certification in this State.
(5) Mandatory Funding Clause. In addition to the clauses required under Rule 482-1-156-.14, reinsurance contracts entered into or renewed under this rule shall include a proper funding clause, which requires the certified reinsurer to provide and maintain security in an amount sufficient to avoid the imposition of any financial statement penalty on the ceding insurer under this rule for reinsurance ceded to the certified reinsurer.
(6) The commissioner shall comply with all reporting and notification requirements that may be established by the NAIC with respect to certified reinsurers and qualified jurisdictions.
Author: Commissioner of Insurance
Statutory Authority: Code of Ala. 1975, §§ 27-2-17, 27-5B-1, et seq. (2013)
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