Hawaii Administrative Rules
Title 16 - DEPARTMENT OF COMMERCE AND CONSUMER AFFAIRS
Chapter 17 - CAPTIVE INSURANCE COMPANIES
Section 16-17-14.1 - Reinsurance guidelines for risk retention captives

Universal Citation: HI Admin Rules 16-17-14.1

Current through November, 2023

(a) A risk retention captive may qualify for credit for reinsurance on risks ceded to a reinsurer if:

(1) The reinsurer maintains an A- or higher A.M. Best rating or other comparable rating from a nationally recognized statistical rating organization, the reinsurer maintains a minimum policyholder surplus in an amount acceptable to the commissioner based upon a review of the reinsurer's most recent audited financial statements, and the reinsurer is licensed and domiciled in a jurisdiction acceptable to the commissioner; or

(2) The reinsurer satisfies all of the following requirements and any other requirements deemed necessary by the commissioner:
(A) The risk retention captive or its captive manager shall file annually, on or before June 30, the reinsurer's audited financial statements, which the commissioner shall analyze to assess the appropriateness of the reserve credit or the initial and continued financial condition of the reinsurer;

(B) The reinsurer shall demonstrate to the satisfaction of the commissioner that it maintains a ratio of net written premium, wherever written, to surplus and capital of not more than three to one;

(C) If the reinsurer is an affiliate of the risk retention captive, the reinsurer shall not write third-party business without prior written approval from the commissioner;

(D) The reinsurer shall not use cell arrangements without prior written approval from the commissioner;

(E) The reinsurer shall be licensed and domiciled in a jurisdiction acceptable to the commissioner; and

(F) The reinsurer shall submit to the examination authority of the commissioner.

For purposes of this paragraph, a reinsurer is affiliated with a risk retention captive if more than fifty per cent of the equity interests in the reinsurer are owned, directly or indirectly, by one or more members of the risk retention captive.

(b) A risk retention captive using these reinsurance guidelines shall not receive credit for reinsurance if all of its policies are ceded through:

(1) One hundred per cent reinsurance arrangements; or

(2) A lesser percentage approved by the commissioner, and the risk retention captive exceeds the approved percentage. While no credit for reinsurance shall be allowed for the amount in excess of the approved percentage, the risk retention captive may qualify for credit for reinsurance for the amount within the approved percentage.

(c) The commissioner shall either require a reinsurer not domiciled in the United States to include language in the reinsurance agreement stating that in the event of the reinsurer's failure to perform its obligations under the terms of its reinsurance agreement, the reinsurer shall submit to the jurisdiction of any court of competent jurisdiction in the United States or shall require the reinsurer to comply with subsection (d).

(d) For credit for reinsurance and solvency regulatory purposes, the commissioner may require an approved funds-held agreement, letter of credit, trust, or other acceptable collateral based upon unearned premium, loss and loss adjustment expense reserves, and incurred but not reported reserves.

(e) Upon application, the commissioner may waive either of the reinsurance requirements in subsection (a)(2)(B) or (a)(2)(F) if the risk retention captive or reinsurer can demonstrate to the commissioner that the reinsurer is sufficiently capitalized based upon:

(1) An annual review of the reinsurer's most recent audited financial statements;

(2) The reinsurer being licensed and domiciled in a jurisdiction satisfactory to the commissioner; and

(3) The proposed reinsurance agreement adequately protecting the risk retention captive and its policyholders.

Any waiver shall be included in the plan of operation or any of its subsequent revisions or amendments, pursuant to 15 U.S.C. section 3902(d)(1). The plan shall be submitted by the risk retention captive to the commissioner of its state of domicile and each state in which the risk retention captive intends to do business or is currently registered. Any waiver of a requirement in subsection (a)(2) shall constitute a change in the risk retention captive's plan of operation in each of those states.

(f) Upon application, the commissioner may waive the requirement in subsection (c) that a reinsurance arrangement must satisfy either subsection (c) or (d) if the risk retention captive or reinsurer can demonstrate to the commissioner that the reinsurer is sufficiently capitalized, based upon:

(1) An annual review of the reinsurer's most recent audited financial statements;

(2) The reinsurer being licensed and domiciled in a jurisdiction satisfactory to commissioner; and

(3) The proposed reinsurance agreement adequately protecting the risk retention captive and its policyholders.

Any waiver shall be disclosed in Note 1 of the risk retention captive's annual statutory financial statement.

(g) Each risk retention captive or captive manager of a risk retention captive shall assess the reinsurance programs of the risk retention captives under their management, and within sixty days of the effective date of this section, shall submit a written report to the commissioner indicating whether the risk retention captives are in compliance with these guidelines. All risk retention captives that fail to submit the report in a timely manner shall be examined at the risk retention captive's expense to determine compliance with this section.

(h) This section shall become effective when this chapter becomes effective and shall apply prospectively to risk retention captives. Credit for reinsurance may be granted for a risk retention captive's reinsurers in place as of January 1, 2011, without meeting the requirements of this section. The requirements of this section shall be used for new reinsurers not in place as of January 1, 2011, with which business is placed after January 1, 2011.

[Eff and comp 8/18/2016] (Auth: HRS §§ 431:19-114, 431:19-115) (Imp: HRS § 431:19-111)

Am and comp 8/17/2019

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