Current through Register Vol. 48, No. 12, March 22, 2024
a) Pursuant to Section 173.1(1)(C-10) of the
Code, the Director 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 Part.
b) A "Reciprocal Jurisdiction" means a
jurisdiction, as designated by the Director pursuant to subsection (c), that
meets one of the following:
1) 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;
2) A U.S.
jurisdiction that meets the requirements for accreditation under the NAIC
financial standards and accreditation program; or
3) A qualified jurisdiction, as determined by
the Director pursuant to Section 173.1(1)(C-5)(3) of the Code, which is not
otherwise described in either subsection (b)(1) or (2) and which the Director
determines meets all of the following additional requirements:
A) 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;
B) 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;
C) 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 Illinois 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 Director 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; and
D) 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 Director in
accordance with a memorandum of understanding or similar document between the
Director 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.
c)
Credit shall be allowed when the reinsurance is ceded from an insurer domiciled
in Illinois to an assuming insurer meeting each of the conditions in this
subsection (c).
1) The assuming insurer must
be licensed to transact reinsurance by, and have its head office or be
domiciled in, a Reciprocal Jurisdiction.
2) 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 subsection (c)(7) according to the methodology of
its domiciliary jurisdiction, in the following amounts:
A) No less than $250,000,000; or
B) If the assuming insurer is an association,
including incorporated and individual unincorporated underwriters:
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.
3) The assuming insurer must have
and maintain on an ongoing basis a minimum solvency or capital ratio, as
applicable, as follows:
A) If the assuming
insurer has its head office or is domiciled in a Reciprocal Jurisdiction as
defined in subsection (b)(1), the ratio specified in the applicable covered
agreement;
B) If the assuming
insurer is domiciled in a Reciprocal Jurisdiction as defined in subsection
(b)(2), a risk-based capital (RBC) ratio of 300% of the authorized control
level, calculated in accordance with the formula developed by the NAIC;
or
C) If the assuming insurer is
domiciled in a Reciprocal Jurisdiction as defined in subsection (b)(3), after
consultation with the Reciprocal Jurisdiction and considering any
recommendations published through the NAIC Committee Process and posted to the
NAIC website, such solvency or capital ratio as the Director determines to be
an effective measure of solvency.
4) The assuming insurer must agree to and
provide adequate assurance, in the form of a properly executed Form RJ-1 (see
Appendix C), of its agreement to the following:
A) The assuming insurer must agree to provide
prompt written notice and explanation to the Director if it falls below the
minimum requirements set forth in subsection (c)(2) or (3) of this subsection,
or if any regulatory action is taken against it for serious noncompliance with
applicable law.
B) The assuming
insurer must consent in writing to the jurisdiction of the courts of Illinois
and to the appointment of the Director as agent for service of process.
i) The Director may also require that such
consent be provided and included in each reinsurance agreement under the
Director'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.
C) 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 jurisdiction where
the judgment was obtained.
D) Each
reinsurance agreement must include a provision requiring the assuming insurer
to provide security in an amount equal to 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.
E) The assuming insurer must confirm that it
is not presently participating in any solvent scheme of arrangement, which
involves Illinois' ceding insurers, and agrees to notify the ceding insurer and
the Director and to provide 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 173.1(1)(C-5) and 173.1(2) of the Code and Sections
1104.70,
1104.80
or
1104.90.
F) The assuming insurer must agree in writing
to meet the applicable information filing requirements as set forth in
subsection (c)(5).
5)
The assuming insurer or its legal successor must provide, if requested by the
Director, on behalf of itself and any legal predecessors, the following
documentation to the Director:
A) 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;
B) 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 and/or competent regulatory authority;
C) 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; and
D) 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 subsection (c)(6).
6) 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:
A) More than 15% of the reinsurance
recoverables from the assuming insurer are overdue and in dispute as reported
to the Director;
B) More than 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; or
C) The aggregate amount of reinsurance
recoverable on paid losses that are not in dispute, but are overdue by 90 days
or more, exceeds $50,000,000, or as otherwise specified in a covered
agreement.
7) The
assuming insurer's supervisory authority must confirm to the Director on an
annual basis that the assuming insurer complies with the requirements set forth
in subsections (c)(2) and (3).
8)
Nothing in this provision precludes an assuming insurer from providing the
Director with information on a voluntary basis.
d) The Director shall timely create and
publish a list of Reciprocal Jurisdictions to the Department's website.
1) A list of Reciprocal Jurisdictions is
published to the NAIC's website through the NAIC Committee Process. The
Director's list shall include any Reciprocal Jurisdiction as defined under
subsection (b)(1) or (2), and shall consider any other Reciprocal Jurisdiction
included on the NAIC list. The Director may approve a jurisdiction that does
not appear on the NAIC list of Reciprocal Jurisdictions in accordance with the
process established in subsection (b) or in accordance with the "Process for
Evaluating Qualified and Reciprocal Jurisdictions Approved by the NAIC"
(National Association of Insurance Commissioners, 1100 Walnut Street, Suite
1500, Kansas City, MO 64106-2197) (August 17, 2021) (no later editions or
amendments), available at
https://www.naic.org.
2) The Director 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, in accordance with the process established in subsection (b) or
the NAIC Committee Process, except that the Director shall not remove from the
list a Reciprocal Jurisdiction as defined under subsection (b)(1) or (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 Section 173.1 of the Code or this
Part.
e) The Director
shall timely create and publish a list of assuming insurers on the Department's
website that have satisfied the conditions set forth in this Section and to
which cessions shall be granted credit in accordance with this Section.
1) If an NAIC accredited jurisdiction has
determined that the conditions set forth in subsection (c) have been met, the
Director 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 subsection. The Director may
accept financial documentation filed with another NAIC accredited jurisdiction
or with the NAIC in satisfaction of the requirements of subsection
(c).
2) When requesting that the
Director defer to another NAIC accredited jurisdiction's determination, an
assuming insurer must submit a properly executed Form RJ-1 (see Appendix C) and
additional information as the Director 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.
f) If the
Director determines that an assuming insurer no longer meets one or more of the
requirements under this Section, the Director may revoke or suspend the
eligibility of the assuming insurer for recognition under this Section.
1) 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 Section
1104.60.
2) 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 Director
and consistent with the provisions of Section 1104.60.
g) Before denying statement credit or
imposing a requirement to post security with respect to subsection (f) or
adopting any similar requirement that will have substantially the same
regulatory impact as security, the Director shall:
1) 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 subsection
(c);
2) Provide the assuming
insurer with 30 days from the date of initial notification to submit a plan to
remedy the defect, and 90 days from the date of initial notification to remedy
the defect, except in exceptional circumstances in which a shorter period is
necessary for policyholder and other consumer protection;
3) After the expiration of 90 days or less,
as set out in subsection (g)(2), if the Director determines that no or
insufficient action was taken by the assuming insurer, the Director may impose
any of the requirements set out in this subsection (g); and
4) Provide a written explanation to the
assuming insurer of any of the requirements set out in this subsection
(g).
h) 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.