Current through Register Vol. 50, No. 9, March 1, 2024
RELATES TO:
KRS
304.1-050,
304.3-400
- 304.3-430, 304.3-500 - 304.3-570, 304.5-130, 304.5-140, 304.5-150,
304.9-020(10), 304.9-700 - 304.9-759, 304.24-100, 304.37-010 - 304.37-150,
304.45-020(11), 304.45-030, 304.49-010, 304.49-060, 304.49-110,
304.49-170
NECESSITY, FUNCTION, AND CONFORMITY:
KRS
304.2-110 authorizes the Commissioner of
Insurance to make administrative regulations necessary for or as an aid to the
effectuation of any provisions of the Kentucky Insurance Code as defined in
KRS
304.1-010.
KRS
304.49-140 permits the commissioner to
establish administrative regulations relating to captive insurance companies
that are necessary to carry out the provisions of
KRS
304.49-010 to
304.49-230.
This administrative regulation provides reinsurance, financial solvency, and
consumer protection requirements for captive risk retention groups.
Section 1. Definitions.
(1) "Captive insurer" is defined by
KRS
304.49-010(3).
(2) "Commissioner" is defined by
KRS
304.1-050(1).
(3) "Department" is defined by
KRS
304.1-050(2).
(4) "Insurance producer" is defined by
KRS
304.9-020(10).
(5) "Protected cell" is defined by
KRS
304.49-010(20).
(6) "Reinsurance intermediary" is defined by
KRS
304.9-700(5).
(7) "Risk retention group" is defined by
KRS
304.45-020(11).
Section 2. Permitted Reinsurance
for Risk Retention Groups Licensed as Captive Insurers. Risk retention groups
shall not receive credit on a quarterly or annual financial statement if all
policies are ceded through 100 percent reinsurance arrangements.
Section 3. Credit for Reinsurance.
(1) Credit for reinsurance shall be permitted
if the reinsurer complies with
KRS
304.5-130,
304.5-140,
304.5-150
and
806 KAR
5:025.
(2)
Credit for reinsurance may be permitted if the reinsurer:
(a) Maintains an A- or higher A.M. Best
rating, or other comparable rating from a nationally recognized statistical
rating organization;
(b)
1. 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
2. Is licensed and domiciled in a
jurisdiction in the United States or an established offshore domicile;
or
(c) Satisfies all of
the following requirements:
1. The captive
manager or risk retention group licensed as a captive insurer shall file
annually, on or before June 30, the reinsurer's audited financial statements,
which shall be analyzed by the commissioner to assess the appropriateness of
the reserve credit or the initial and continued financial condition of the
reinsurer;
2. The reinsurer shall
demonstrate that it maintains a ratio of net written premium, wherever written,
to surplus and capital of not more than three (3) to one (1);
3. The affiliated reinsurer shall not write
third-party business without obtaining prior written approval from the
commissioner;
4. The reinsurer
shall not use a protected cell arrangement without obtaining prior written
approval from the commissioner;
5.
The reinsurer shall be licensed and domiciled in a jurisdiction either in the
United States or in an established offshore domicile; and
6. The reinsurer shall submit to the
examination authority of the commissioner.
Section 4. Additional Reinsurance
Requirements.
(1) The commissioner shall
require a reinsurer not domiciled in the United States to:
(a) Include language in the reinsurance
agreement that states that if the reinsurer fails 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
(b) Be compliant with subsection
(2) of this section.
(2)
For credit for reinsurance and solvency regulatory purposes, the commissioner
may require a reinsurer to provide to the ceding company an approved funds-held
agreement, letter of credit, trust or other acceptable collateral based on
unearned premium, loss and loss adjustment expense reserves, and incurred but
not reported claims reserves.
Section
5. Requirements for Waiver.
(1)
(a) Upon application by the risk retention
group, the commissioner may waive either of the reinsurance requirements in
Section 3(2)(c)2. or Section 3(3)(c)6. of this administrative regulation if the
risk retention group licensed as a captive insurer or reinsurer can demonstrate
that:
1. The reinsurer is sufficiently
capitalized based upon an annual review of the reinsurer's most recent audited
financial statements;
2. The
reinsurer is licensed and domiciled in a jurisdiction in the United States or
in an established offshore domicile; and
3. The proposed reinsurance agreement
adequately protects the risk retention group licensed as a captive insurer and
its policyholders.
(b)
Any waiver granted in accordance with subsection (1)(a) of this section shall
be:
1. Included in the risk retention group's
plan of operation, or any subsequent revision or amendment of the plan;
and
2. Submitted by the risk
retention group licensed as a captive to the commissioner of its state of
domicile and each state in which the risk retention group licensed as a captive
intends to do business or is currently registered.
(c) Any waiver of a requirement in Section
3(2)(c)2. or Section 3(2)(c)6. of this administrative regulation shall be
considered a change in the risk retention group's plan of operation in each of
those states.
(2)
(a) Upon application by the risk retention
group, the commissioner may waive the requirements of Section 4(1) or (2) of
this administrative regulation if the risk retention group licensed as a
captive insurer or reinsurer can demonstrate that:
1. The reinsurer is sufficiently capitalized
based upon an annual review of the reinsurer's most recent audited financial
statements;
2. The reinsurer is
licensed and domiciled in a jurisdiction in the United States or in an
established offshore domicile; and
3. The proposed reinsurance agreement
adequately protects the risk retention group licensed as a captive insurer and
its policyholders.
(b)
Any waiver granted in accordance with subsection (2)(a) of this section shall
be disclosed in Note 1 of the risk retention group's annual statutory financial
statement.
Section
6. Limits on Risk. A risk retention group shall not retain any
risk on any one (1) subject of insurance, whether located or to be performed in
this state or elsewhere, in an amount exceeding ten (10) percent of its surplus
to policyholders. Authorized reinsurance ceded shall be deducted in determining
risk retained. The requirements on limits of risk in
KRS
304.24-100 shall apply to newly formed
domestic mutual insurers.
Section
7. Holding Company. Risk retention groups licensed as captive
insurers shall make all required holding company filings mandated in KRS
Chapter 304.37 on forms prescribed in
806 KAR
37:010. If a disclaimer of affiliation is filed, a
copy of the disclaimer shall be filed as a change in business plan with all
other states in which the company is registered.
Section 8. Reinsurance Intermediaries,
Managing General Agents, and Producer Controlled Agents. A risk retention group
licensed as a captive insurer shall comply with
KRS
304.3-400 to
304.3-430,
304.3-500
to
304.3-570,
and
304.9-700
to
304.9-759.
STATUTORY AUTHORITY:
KRS
304.2-110,
304.49-140