Alabama Administrative Code
Title 482 - ALABAMA DEPARTMENT OF INSURANCE
Chapter 482-1-156 - CREDIT FOR REINSURANCE
Section 482-1-156-.08.1 - Credit For Reinsurance - Reciprocal Jurisdictions
Universal Citation: AL Admin Code R 482-1-156-.08.1
Current through Register Vol. 42, No. 11, August 30, 2024
(1) Pursuant to Section 27-5B-8.1, as added to the Code of Ala. 1975 by Alabama Act No. 2021-235, the commissioner shall allow credit for reinsurance ceded by a domestic insurer to an assuming insurer that is licensed to write reinsurance by, and has its head office or is domiciled in, a Reciprocal Jurisdiction, and which meets the other requirements of this chapter.
(2) A "Reciprocal Jurisdiction" is a jurisdiction, as designated by the commissioner pursuant to paragraph (4), that meets one of the following:
(a) A non-U.S. jurisdiction that is subject
to an in-force covered agreement with the United States, each within its legal
authority, or, in the case of a covered agreement between the United States and
the European Union, is a member state of the European Union. For purposes of
this paragraph (2), a "covered agreement" is an agreement entered into pursuant
to the Dodd-Frank Wall Street Reform and Consumer Protection Act,
31 U.S.C. §§
313 and
314, that is
currently in effect or in a period of provisional application and addresses the
elimination, under specified conditions, of collateral requirements as a
condition for entering into any reinsurance agreement with a ceding insurer
domiciled in this state or for allowing the ceding insurer to recognize credit
for reinsurance.
(b) A U.S.
jurisdiction that meets the requirements for accreditation under the NAIC
financial standards and accreditation program.
(c) A qualified jurisdiction, as determined
by the commissioner pursuant to subsection (c) of Section
27-5B-8 and paragraph (3) of Rule
482-1-156-.08, which is not
otherwise described in subparagraph (a) or (b) and which the commissioner
determines meets all of the following additional requirements:
1. Provides that an insurer which has its
head office or is domiciled in such qualified jurisdiction shall receive credit
for reinsurance ceded to a U.S.-domiciled assuming insurer in the same manner
as credit for reinsurance is received for reinsurance assumed by insurers
domiciled in such qualified jurisdiction.
2. Does not require a U.S.-domiciled assuming
insurer to establish or maintain a local presence as a condition for entering
into a reinsurance agreement with any ceding insurer subject to regulation by
the non-U.S. jurisdiction or as a condition to allow the ceding insurer to
recognize credit for such reinsurance.
3. Recognizes the U.S. state regulatory
approach to group supervision and group capital, by providing written
confirmation by a competent regulatory authority, in such qualified
jurisdiction, that insurers and insurance groups that are domiciled or maintain
their headquarters in this state or another jurisdiction accredited by the NAIC
shall be subject only to worldwide prudential insurance group supervision
including worldwide group governance, solvency and capital, and reporting, as
applicable, by the commissioner or the commissioner of the domiciliary state
and will not be subject to group supervision at the level of the worldwide
parent undertaking of the insurance or reinsurance group by the qualified
jurisdiction.
4. Provides written
confirmation by a competent regulatory authority in such qualified jurisdiction
that information regarding insurers and their parent, subsidiary, or affiliated
entities, if applicable, shall be provided to the commissioner in accordance
with a memorandum of understanding or similar document between the commissioner
and such qualified jurisdiction, including but not limited to the International
Association of Insurance Supervisors Multilateral Memorandum of Understanding
or other multilateral memoranda of understanding coordinated. by the
NAIC.
(3) Credit shall be allowed when the reinsurance is ceded from an insurer domiciled in this state to an assuming insurer meeting each of the conditions set forth below:
(a) The assuming insurer must be
licensed to transact reinsurance by, and have its head office or be domiciled
in, a Reciprocal Jurisdiction.
(b)
The assuming insurer must have and maintain on an ongoing basis minimum capital
and surplus, or its equivalent, calculated on at least an annual basis as of
the preceding December 31 or at the annual date otherwise statutorily reported
to the Reciprocal Jurisdiction, and confirmed as set forth in subparagraph (g)
according to the methodology of its domiciliary jurisdiction, in the following
amounts:
1. No less than
$250,000,000.
2. If the assuming
insurer is an association, including incorporated and individual unincorporated
underwriters, both of the following:
(i)
Minimum capital and surplus equivalents (net of liabilities) or own funds of
the equivalent of at least $250,000,000; and
(ii) A central fund containing a balance of
the equivalent of at least $250,000,000.
(c) The assuming insurer must have and
maintain on an ongoing basis a minimum solvency or capital ratio, as
applicable, as follows:
1. If the assuming
insurer has its head office or is domiciled in a Reciprocal Jurisdiction as
defined in subparagraph (a) of paragraph (2), the ratio specified in the
applicable covered agreement.
2. If
the assuming insurer is domiciled in a Reciprocal Jurisdiction as defined in
subparagraph (b) of paragraph (2), a risk-based capital (RBC) ratio of three
hundred percent (300%) of the authorized control level, calculated in
accordance with the formula developed by the NAIC.
3. If the assuming insurer is domiciled in a
Reciprocal Jurisdiction as defined in subparagraph (c) of paragraph (2), after
consultation with the Reciprocal Jurisdiction and considering any
recommendations published through the NAIC Committee Process, such solvency or
capital ratio as the commissioner determines to be an effective measure of
solvency.
(d) The
assuming insurer must agree to and provide adequate assurance, in the form of a
properly executed Form RJ-1 (attached as an exhibit to this rule), of its
agreement to the following:
1. The assuming
insurer must agree to provide prompt written notice and explanation to the
commissioner if it falls below the minimum requirements set forth in
subparagraphs (b) or (c), or if any regulatory action is taken against it for
serious noncompliance with applicable law.
2. The assuming insurer must consent in
writing to the jurisdiction of the courts of this state and to the appointment
of the commissioner as agent for service of process.
(i) The commissioner may also require that
such consent be provided and included in each reinsurance agreement under the
commissioner's jurisdiction.
(ii)
Nothing in this provision shall limit or in any way alter the capacity of
parties to a reinsurance agreement to agree to alternative dispute resolution
mechanisms, except to the extent such agreements are unenforceable under
applicable insolvency or delinquency laws.
3. The assuming insurer must consent in
writing to pay all final judgments, wherever enforcement is sought, obtained by
a ceding insurer, that have been declared enforceable in the territory where
the judgment was obtained.
4. Each
reinsurance agreement must include a provision requiring the assuming insurer
to provide security in an amount equal to one hundred percent (100%) of the
assuming insurer's liabilities attributable to reinsurance ceded pursuant to
that agreement if the assuming insurer resists enforcement of a final judgment
that is enforceable under the law of the jurisdiction in which it was obtained
or a properly enforceable arbitration award, whether obtained by the ceding
insurer or by its legal successor on behalf of its estate, if
applicable.
5. The assuming insurer
must confirm that it is not presently participating in any solvent scheme of
arrangement, which involves this state's ceding insurers, and agrees to notify
the ceding insurer and the commissioner and to provide one hundred percent
(100%) security to the ceding insurer consistent with the terms of the scheme,
should the assuming insurer enter into such a solvent scheme of arrangement.
Such security shall be in a form consistent with the provisions of Sections
27-SB-8 and 27-SB-14 and Rules
482-1-156-.12,
482-1-156-.13 or
482-1-156-.14. For purposes of
this chapter, the term "solvent scheme of arrangement" means a foreign or alien
statutory or regulatory compromise procedure subject to requisite majority
creditor approval and judicial sanction in the assuming insurer's home
jurisdiction either to finally commute liabilities of duly noticed classed
members or creditors of a solvent debtor, or to reorganize or restructure the
debts and obligations of a solvent debtor on a final basis, and which may be
subject to judicial recognition and enforcement of the arrangement by a
governing authority outside the ceding insurer's home jurisdiction.
6. The assuming insurer must agree in writing
to meet the applicable information filing requirements as set forth in
subparagraph (e).
(e)
The assuming insurer or its legal successor must provide, if requested by the
commissioner, on behalf of itself and any legal predecessors, the following
documentation to the commissioner:
1. For the
two years preceding entry into the reinsurance agreement and on an annual basis
thereafter, the assuming insurer's annual audited financial statements, in
accordance with the applicable law of the jurisdiction of its head office or
domiciliary jurisdiction, as applicable, including the external audit
report.
2. For the two years
preceding entry into the reinsurance agreement, the solvency and financial
condition report or actuarial opinion, if filed with the assuming insurer's
supervisor.
3. Prior to entry into
the reinsurance agreement and not more than semi-annually thereafter, an
updated list of all disputed and overdue reinsurance claims outstanding for 90
days or more, regarding reinsurance assumed from ceding insurers domiciled in
the United States.
4. Prior to
entry into the reinsurance agreement and not more than semi-annually
thereafter, information regarding the assuming insurer's assumed reinsurance by
ceding insurer, ceded reinsurance by the assuming insurer, and reinsurance
recoverable on paid and unpaid losses by the assuming insurer to allow for the
evaluation of the criteria set forth in subparagraph (f).
(f) The assuming insurer must maintain a
practice of prompt payment of claims under reinsurance agreements. The lack of
prompt payment will be evidenced if any of the following criteria is met:
1. More than fifteen percent (15%) of the
reinsurance recoverables from the assuming insurer are overdue and in dispute
as reported to the commissioner.
2.
More than fifteen percent (15%) of the assuming insurer's ceding insurers or
reinsurers have overdue reinsurance recoverable on paid losses of 90 days or
more which are not in dispute and which exceed for each ceding insurer
$100,000, or as otherwise specified in a covered agreement.
3. The aggregate amount of reinsurance
recoverable on paid losses which are not in dispute, but are overdue by 90 days
or more, exceeds $50,000,000, or as otherwise specified in a covered
agreement.
(g) The
assuming insurer's supervisory authority must confirm to the commissioner on an
annual basis that the assuming insurer complies with the requirements set forth
in subparagraphs (b) and (c).
(h)
Nothing in this provision precludes an assuming insurer from providing the
commissioner with information on a voluntary basis.
(4) The commissioner shall timely create and publish a list of Reciprocal Jurisdictions.
(a) A list of Reciprocal Jurisdictions is
published through the NAIC Committee Process. The commissioner's list shall
include any Reciprocal Jurisdiction as defined under subparagraphs (a) and {b)
of paragraph (2), and shall consider any other Reciprocal Jurisdiction included
on the NAIC list. The commissioner may approve a jurisdiction that does not
appear on the NAIC list of Reciprocal Jurisdictions as provided by applicable
law, regulation, or in accordance with criteria published through the NAIC
Committee Process.
(b) The
commissioner may remove a jurisdiction from the list of Reciprocal
Jurisdictions upon a determination that the jurisdiction no longer meets one or
more of the requirements of a Reciprocal Jurisdiction, as provided by
applicable law, regulation, or in accordance with a process published through
the NAIC Committee Process, except that the commissioner shall not remove from
the list a Reciprocal Jurisdiction as defined under subparagraphs (a) and (b)
of paragraph (2). Upon removal of a Reciprocal Jurisdiction from this list
credit for reinsurance ceded to an assuming insurer domiciled in that
jurisdiction shall be allowed, if otherwise allowed pursuant to Chapter 5B of
Title 27, beginning with Section 27-SB-1, or this chapter.
(5) The commissioner shall timely create and publish a list of assuming insurers that have satisfied the conditions set forth in this rule and to which cessions shall be granted credit in accordance with this rule.
(a) If an NAIC accredited
jurisdiction has determined that the conditions set forth in paragraph (3) have
been met, the commissioner has the discretion to defer to that jurisdiction's
determination, and add such assuming insurer to the list of assuming insurers
to which cessions shall be granted credit in accordance with this paragraph.
The commissioner may accept financial documentation filed with another NAIC
accredited jurisdiction or with the NAIC in satisfaction of the requirements of
paragraph (3).
(b) When requesting
that the commissioner defer to another NAJC accredited jurisdiction's
determination, an assuming insurer must submit a properly executed Form RJ-1
and additional information as the commissioner may require. A state that has
received such a request will notify other states through the NAIC Committee
Process and provide relevant information with respect to the determination of
eligibility.
(6) If the commissioner determines that an assuming insurer no longer meets one or more of the requirements under this rule, the commissioner may revoke or suspend the eligibility of the assuming insurer for recognition under this rule.
(a) While an assuming insurer's eligibility
is suspended, no reinsurance agreement issued, amended or renewed after the
effective date of the suspension qualifies for credit except to the extent that
the assuming insurer's obligations under the contract are secured in accordance
with Rule
482-1-156-.11.
(b) If an assuming insurer's eligibility is
revoked, no credit for reinsurance may be granted after the effective date of
the revocation with respect to any reinsurance agreements entered into by the
assuming insurer, including reinsurance agreements entered into prior to the
date of revocation, except to the extent that the assuming insurer's
obligations under the contract are secured in a form acceptable to the
commissioner and consistent with the provisions of Rule
482-1-156-.11.
(7) Before denying statement credit or imposing a requirement to post security with respect to paragraph (6) or adopting any similar requirement that will have substantially the same regulatory impact as security, the commissioner shall do all of the following:
(a) Communicate with the ceding insurer, the
assuming insurer, and the assuming insurer's supervisory authority that the
assuming insurer no longer satisfies one of the conditions listed in paragraph
(c).
(b) Provide the assuming
insurer with 30 days from the initial communication to submit a plan to remedy
the defect, and 90 days from the initial communication to remedy the defect,
except in exceptional circumstances in which a shorter period is necessary for
policyholder and other consumer protection.
(c) After the expiration of 90 days or less,
as set out in paragraph (b), if the commissioner determines that no or
insufficient action was taken by the assuming insurer, the commissioner may
impose any of the requirements as set out in this paragraph.
(d) Provide a written explanation to the
assuming insurer of any of the requirements set out in this
paragraph.
(8) If subject to a legal process of rehabilitation, liquidation or conservation, as applicable, the ceding insurer, or its representative, may seek and, if determined appropriate by the court in which the proceedings are pending, may obtain an order requiring that the assuming insurer post security for all outstanding liabilities.
Author: Commissioner of Insurance
Statutory Authority: Code of Ala. 1975, §§ 27-2-17, 27-5B-1, et seq.
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