Connecticut Administrative Code
Title 38a - Insurance Department
88 - Credit for Reinsurance
Section 38a-88-4a - Credit for reinsurance - certified reinsurers
Universal Citation: CT Reg of State Agencies 38a-88-4a
Current through September 9, 2024
(a)
(1) 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 section. 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 38a-85, 38a-85a and 38a-86 of the Connecticut General
Statutes, and sections
38a-88-7,
38a-88-8,
or
38a-88-9 of the
Regulations of Connecticut State Agencies. The amount of security required in
order for full credit to be allowed shall correspond with the following
requirements:
|
Ratings |
Security Required |
|
Secure - 1 |
0% |
|
Secure - 2 |
10% |
|
Secure - 3 |
20% |
|
Secure - 4 |
50% |
|
Secure - 5 |
75% |
|
Vulnerable - 6 |
100% |
(2)
Affiliated reinsurance transactions shall receive the same opportunity for
reduced security requirements as all other reinsurance transactions.
(3) The Commissioner shall require the
certified reinsurer to post one hundred percent (100%) security, for the
benefit of the ceding insurer or its estate, upon the entry of an order of
rehabilitation, liquidation or conservation against the ceding
insurer.
(4) 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 insurer
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 in compliance with its
contractual obligations as set forth in the reinsurance agreement under which
the claims are ceded. 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:
(A) Line 1: Fire
(B) Line 2: Allied Lines
(C) Line 3: Farmowners multiple
peril
(D) Line 4: Homeowners
multiple peril
(E) Line 5:
Commercial multiple peril
(F) Line
9: Inland Marine
(G) Line 12:
Earthquake
(H) Line 21: Auto
physical damage
(5)
Credit for reinsurance under this section 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 section with
respect to losses incurred and reserves reported from and after the effective
date of the amendment or new contract.
(6) Nothing in this section 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 section.
(b) Certification Procedure.
(1) 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 shall not take final action on the
application until at least thirty (30) days after posting the notice required
by this subdivision.
(2) 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 pursuant to subsection
(a)(1) of this section. The Commissioner shall publish a list of all certified
reinsurers and their ratings.
(3)
In order to be eligible for certification, the assuming insurer shall meet the
following requirements:
(A) The assuming
insurer shall be domiciled and licensed to transact insurance or reinsurance in
a Qualified Jurisdiction, as determined by the Commissioner pursuant to
subsection (c) of this section.
(B)
The assuming insurer shall maintain capital and surplus, or its equivalent, of
no less than $250,000,000 determined in accordance with subdivision (4)(H) of
this subsection. This requirement may also be satisfied by a group 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.
(C) The assuming insurer shall 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;
or
(v) Any other Nationally
Recognized Statistical Rating Organization.
(D) The certified reinsurer shall comply with
any other requirements reasonably imposed by the Commissioner as necessary or
appropriate for the protection of the policyholders of the ceding insurer or in
the public interest.
(4)
Each certified reinsurer shall be rated on a legal entity basis, with due
consideration being given to the group rating where appropriate, except that a
group 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 the following:
(A) 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 |
(B)
The business practices of the certified reinsurer in dealing with its ceding
insurers, including its compliance with reinsurance contractual terms and
obligations;
(C) For certified
reinsurers domiciled in the United States, 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);
(D) For certified
reinsurers not domiciled in the United States, a review annually of Form CR-F
(for property/casualty reinsurers)(Appendix D of sections
38a-88-1
to
38a-88-12,
inclusive, of the Regulations of Connecticut State Agencies) or Form CR-S (for
life and health reinsurers)(Appendix E of sections
38a-88-1
to
38a-88-12,
inclusive, of the Regulations of Connecticut State Agencies);
(E) 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 90 days past due or
are in dispute, with specific attention given to obligations payable to
companies that are in administrative supervision or receivership;
(F) Regulatory actions against the certified
reinsurer;
(G) The report of the
independent auditor on the financial statements of the insurance enterprise, on
the basis described in subdivision (4)(H) of this subsection;
(H) For certified reinsurers not domiciled in
the United States, audited financial statements, regulatory filings, and
actuarial opinion (as filed with the non-United States jurisdiction supervisor,
with a translation into English). Upon the initial application for
certification, the Commissioner will consider audited financial statements for
the last 2 years filed with its non-United States jurisdiction
supervisor;
(I) The liquidation
priority of obligations to a ceding insurer in the certified reinsurer's
domiciliary jurisdiction in the context of an insolvency proceeding;
(J) A certified reinsurer's participation in
any solvent scheme of arrangement, or similar procedure, which involves United
States 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; and
(K) Any other information deemed relevant by
the Commissioner as necessary or appropriate for the protection of the
policyholders of the ceding insurer or in the public interest.
(5) Based on the analysis
conducted under subdivision (4)(E) of this subsection 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 United States 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 subsection (b)(4)(A) of
this section if the Commissioner finds that:
(A) more than 15% of the certified
reinsurer's ceding insurance clients have overdue reinsurance recoverables on
paid losses of 90 days or more which are not in dispute and which exceed
$100,000 for each cedent;
(B) the
aggregate amount of reinsurance recoverables on paid losses which are not in
dispute that are overdue by 90 days or more exceeds $50,000,000; or
(C) the certified reinsurer exhibits
qualities or characteristics of a troubled insurer as described in sections
38a-8-101 to
38a-8-104,
inclusive, of the Regulations of Connecticut State Agencies.
(6) The assuming insurer shall
submit a properly executed Form CR-1 (Appendix B of sections
38a-88-1
to
38a-88-12,
inclusive, of the Regulations of Connecticut State Agencies) 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 United States 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.
(7) The certified reinsurer shall 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, and indicate in writing those portions of its filings that
it believes are exempt from disclosure pursuant to section 1-210(b)(5) of the
Connecticut General Statutes. The applicable information filing requirements
are, as follows:
(A) Notification not later
than 10 days after 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 therefor;
(B) Annually, Form CR-F (Appendix D of
sections
38a-88-1
to
38a-88-12,
inclusive, of the Regulations of Connecticut State Agencies) or Form CR-S
(Appendix E of sections
38a-88-1
to
38a-88-12,
inclusive, of the Regulations of Connecticut State Agencies), as
applicable;
(C) Annually, the
report of the independent auditor on the financial statements of the insurance
enterprise, on the basis described in subparagraph (D) of this
subdivision;
(D) Annually, the most
recent audited financial statements , regulatory filings, and actuarial opinion
(as filed with the certified reinsurer's supervisor, with a translation into
English). Upon the initial certification, audited financial statements for the
last 2 years filed with the certified reinsurer's supervisor;
(E) At least annually, an updated list of all
disputed and overdue reinsurance claims regarding reinsurance assumed from
United States domestic ceding insurers;
(F) 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; and
(G) Any other
information that the Commissioner may reasonably require as necessary or
appropriate for the protection of the policyholders of the ceding insurer or in
the public interest.
(8)
Change in Rating or Revocation of Certification.
(A) 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 subdivision (4)(A) of this subsection.
(B) The assuming reinsurer's certification
and rating are contingent upon the reinsurer maintaining its current financial
condition. Any deterioration, as evidenced by qualities or characteristics of a
troubled insurer in accordance with sections
38a-8-101 to
38a-8-104,
inclusive, of the Regulations of Connecticut State Agencies, may result in a
change in the reinsurer's rating or revocation or certification. The
Commissioner shall have the authority to suspend or revoke a certified
reinsurer's certification at any time if the certified reinsurer fails to meet
its obligations or security requirements under this section, 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.
(C) 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.
(D) Upon
revocation of the certification of a certified reinsurer by the Commissioner,
the assuming insurer shall be required to post security in accordance with
section
38a-88-6
of the Regulations of Connecticut State Agencies 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 section
38a-88-4
of the Regulations of Connecticut State Agencies, the Commissioner may allow
additional credit equal to the ceding insurer's pro rata share
of such funds, discounted to reflect the risk of uncollectibility 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 months for all reinsurance
ceded to that certified reinsurer, unless the reinsurance is found by the
Commissioner to be at high risk of uncollectibility.
(c) Qualified Jurisdictions.
(1) If, upon conducting
an evaluation under this section with respect to the reinsurance supervisory
system of any non-United States 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.
(2) In order to determine whether the
domiciliary jurisdiction of a non-United States assuming insurer is eligible to
be recognized as a qualified jurisdiction, the Commissioner shall evaluate the
reinsurance supervisory system of the non-United States jurisdiction, both
initially and on an ongoing basis, and consider the rights, benefits and the
extent of reciprocal recognition afforded by the non-United States jurisdiction
to reinsurers licensed and domiciled in the United States. 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 shall 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 the following:
(A) The framework under
which the assuming insurer is regulated.
(B) The structure and authority of the
domiciliary regulator with regard to solvency regulation requirements and
financial surveillance.
(C) The
substance of financial and operating standards for assuming insurers in the
domiciliary jurisdiction.
(D) 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.
(E) The
domiciliary regulator's willingness to cooperate with United States regulators
in general and the Commissioner in particular.
(F) The history of performance by assuming
insurers in the domiciliary jurisdiction.
(G) Any documented evidence of substantial
problems with the enforcement of final United States 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 United States judgments or arbitration
awards.
(H) 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.
(I) Any other matters deemed relevant by the
Commissioner for the evaluation of the appropriateness and effectiveness of the
reinsurance supervisory system within the non-United States
jurisdiction.
(3) If the
NAIC publishes a list of qualified jurisdictions, 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 subdivisions (2)(A)
to (I), inclusive, of this subsection.
(4) United States jurisdictions that meet the
requirements for accreditation under the NAIC financial standards and
accreditation program shall be recognized as qualified jurisdictions.
(d) Recognition of Certification Issued by an NAIC Accredited Jurisdiction.
(1) 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 (Appendix B of sections
38a-88-1
to
38a-88-12,
inclusive, of the Regulations of Connecticut State Agencies) and such
additional information as the Commissioner requires. The assuming insurer shall
be considered to be a certified reinsurer in this state.
(2) 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
not later than 10 days after receiving notice of the change.
(3) The Commissioner may withdraw recognition
of the other jurisdiction's rating at any time and assign a new rating pursuant
to the provisions of this section.
(4) 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 pursuant to subdivision (8)(B) of
subsection (b) of this section, the certified reinsurer's certification shall
remain in good standing in this State for a period of three months, which shall
be extended if additional time is necessary to consider the assuming insurer's
application for certification in this State.
(e) Mandatory Funding Clause. In addition to the clauses required under section 38a-88-10 of the Regulations of Connecticut State Agencies, reinsurance contracts entered into or renewed under this section 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 section for reinsurance ceded to the certified reinsurer.
(f) 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.
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