Louisiana Administrative Code
Title 37 - INSURANCE Part
Part XIII - Regulations
Chapter 35 - Regulation 56-Credit for Reinsurance
Section XIII-3510 - Credit for Reinsurance-Certified Reinsurers
Universal Citation: LA Admin Code XIII-3510
Current through Register Vol. 50, No. 9, September 20, 2024
A. Pursuant to R.S. 22:651(E), 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 stPursuant to R.S. 22:651(E), 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 R.S. 22:651(E) and 652 and §3517 or 3521 of this regulation. The amount of security required in order for full credit to be allowed shall correspond with the following requirements.
1. Ratings/Security Required
|
Ratings |
Security Required |
|
Secure - 1 |
0 percent |
|
Secure - 2 |
10 percent |
|
Secure - 3 |
20 percent |
|
Secure - 4 |
50 percent |
|
Secure - 5 |
75 percent |
|
Vulnerable - 6 |
100 percent |
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 100 percent, for the benefit of the ceding insurer
or its estate, security 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 company 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. 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
Department of Insurance website promptly upon receipt of any application for
certification, including instructions on how members of the public may respond
to the application. The commissioner may not take final action on the
application until at least 30 days after posting the notice required by this
Paragraph.
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 in accordance with
§3510. A 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 must be domiciled and
licensed to transact insurance or reinsurance in a qualified jurisdiction, as
determined by the commissioner pursuant to
§3510. C
b. The assuming insurer must maintain capital
and surplus, or its equivalent, of no less than $250,000,000 calculated in
accordance with
§3510. B.4.h This
requirement may also be satisfied by an association 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 must 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 and 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 must comply with
any other requirements reasonably imposed by the commissioner.
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 an association 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. The commissioner's evaluation may consider a variety of
factors including the following:
a. the
commissioner may consider a 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 commissioner may consider the business practices of the reinsurer in
dealing with its ceding insurers, including its record of compliance with
reinsurance contractual terms and obligations;
c. for reinsurers domiciled in the United
States, the commissioner may review 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 reinsurers not domiciled in the United
States, the commissioner may review annually Form CR-F (for property/casualty
reinsurers) or Form CR-S (for life and health reinsurers);
e. the commissioner may consider the
reputation of the 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. the commissioner
may consider regulatory actions against the reinsurer;
g. the commissioner may consider the report
of the independent auditor on the financial statements of the insurance
enterprise, on the basis described in
§3510. B.4
h;
h. for certified reinsurers not
domiciled in the United States, the commissioner may consider 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 two 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.
5.
Based on the analysis conducted under
§3510. B.4.e 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
§3510. B.4.a if the
commissioner finds that:
a. more than 15
percent 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; or
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.
6. The assuming insurer must submit a
properly executed Form CR-1 (§3527.C) 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 100 percent of the assuming insurer's liabilities
attributable to reinsurance ceded by United States ceding insurers if it
resists enforcement of a final United States 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
United States judgments or arbitration awards.
7. The certified reinsurer must 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. All information submitted by certified reinsurers which is not otherwise
exempt from disclosure shall be public under the Public Records Law,
R.S.
44:1.1 et seq. The applicable information
filing requirements are, as follows:
a.
notification within 10 days of 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 therefore;
b. annually, Form CR-F or CR-S, as
applicable;
c. annually, the report
of the independent auditor on the financial statements of the insurance
enterprise, on the basis described in
§3510. B.7
d;
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 two 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.
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
§3510. B.4.a
b. The commissioner shall have the
authority to suspend, revoke, or otherwise modify 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
§3515 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 §3509, 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 must 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, but are not limited to, 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.
3. A list
of qualified jurisdictions shall be published through the NAIC committee
process. 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
§3510. C.2
a-i.
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 (§3527.C) 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
within 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 in
accordance with
§3510. B.7.a
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 in accordance with
§3510. B.7 b, 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 §3523, 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.
AUTHORITY NOTE: Promulgated in accordance with R.S. 22, Sections 2(E) and 661.
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