Current through Vol. 24-04, March 15, 2024
Rule 11.
(1)
Pursuant to section 1103(6) of the code, MCL 500.1103, the director 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
rule. The credit allowed must 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 director. The security must be in a form consistent with
sections 1103(6) and 1105 of the code, MCL 500.1103 and MCL 500.1105, and the
requirements, as applicable, under
R 500.1123,
R
500.1124,
R 500.1125,
R
500.1126, and
R
500.1133. The amount of security required in order for
full credit to be allowed must 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 must receive the same opportunity for
reduced security requirements as all other reinsurance transactions.
(3) The director shall require the certified
reinsurer to post 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 must 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 director. 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 rule only applies 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 before 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, is only subject to this rule with respect
to the losses incurred and reserves reported from and after the effective date
of the amendment or new contract.
(6) Nothing in this rule prohibits 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 rule.
(7) The director shall post notice on the
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 director may not take final action on the application
until at least 30 days after posting the notice required by this
subrule.
(8) The director shall
issue written notice to an assuming insurer that has applied and been approved
as a certified reinsurer. The notice must include the rating assigned the
certified reinsurer pursuant to subrules (1) to (6) of this rule. The director
shall publish a list of all certified reinsurers and their ratings.
(9) In order to be eligible for
certification, the assuming insurer shall meet all of 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 director pursuant to subrule (15) of this
rule.
(b) The assuming insurer must
maintain capital and surplus, or its equivalent, of no less than
$250,000,000.00 calculated pursuant to subrule (10)(h) of this rule. 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 $250,000,000.00 and a central fund
containing a balance of at least $250,000,000.00.
(c) The assuming insurer must maintain
financial strength ratings from 2 or more rating agencies considered acceptable
by the director. These ratings must be based on interactive communication
between the rating agency and the assuming insurer and must not be based solely
on publicly available information. These financial strength ratings will be one
factor used by the director in determining the rating that is assigned to the
assuming insurer. Acceptable rating agencies include all of the following:
(i) Standard & Poor's.
(ii) Moody's Investors Service.
(iii) Fitch Ratings.
(iv) A.M. Best Company.
(v) Any other nationally recognized
statistical rating organization.
(d) The certified reinsurer must comply with
any other requirements reasonably imposed by the director.
(10) Each certified reinsurer must 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.
Factors that may be considered as part of the evaluation process include, but
are not limited to, all of 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
director 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 2 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 record of 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 a form
approved by the director.
(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 (h) of this subrule.
(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 director 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, that involves United
States ceding insurers. The director shall receive prior notice from a
certified reinsurer that proposes participation by the certified reinsurer in a
solvent scheme of arrangement.
(k)
Any other information considered relevant by the director.
(11) Based on the analysis conducted under
subrule (10)(e) of this rule of a certified reinsurer's reputation for prompt
payment of claims, the director may make appropriate adjustments in the
security the certified reinsurer is required to post to protect its liabilities
to United States ceding insurers as long as the director, at a minimum,
increases the security the certified reinsurer is required to post by 1 rating
level under subrule (10)(a) of this rule if the director finds either of the
following:
(a) More than 15% of the certified
reinsurer's ceding insurance clients have overdue reinsurance recoverables on
paid losses of 90 days or more that are not in dispute and exceed $100,000.00
for each cedent.
(b) The aggregate
amount of reinsurance recoverables on paid losses that are not in dispute that
are overdue by 90 days or more exceeds $50,000,000.00.
(12) The assuming insurer must submit a
properly executed form approved by the director as evidence of its submission
to the jurisdiction of this state, appointment of the director as an agent for
service of process in this state, and agreement to provide security for 100% 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 director shall not certify any assuming insurer that is domiciled
in a jurisdiction that the director has determined does not adequately and
promptly enforce final United States judgments or arbitration awards.
(13) The certified reinsurer must agree to
meet applicable information filing requirements as determined by the director,
both with respect to an initial application for certification and on an ongoing
basis. All information submitted by certified reinsurers that are not otherwise
public information subject to disclosure are exempted from disclosure under the
freedom of information act, 1976 PA 442, MCL 15.231 to 15.246, and must be
withheld from public disclosure. The applicable information filing requirements
include all of the following:
(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 the changes and
the reasons for the changes.
(b)
Annually, the filing of a form approved by the director.
(c) Annually, the report of the independent
auditor on the financial statements of the insurance enterprise, on the basis
described in subdivision (d) of this subrule.
(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.
(g) Any other information
that the director may reasonably require.
(14) All of the following apply to a change
in rating or revocation of certification, as applicable:
(a) In the case of a downgrade by a rating
agency or other disqualifying circumstance, the director shall upon written
notice assign a new rating to the certified reinsurer pursuant to the
requirements of subrule (10)(a) of this rule.
(b) The director has 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 rule, or if other financial or operating results of the
certified reinsurer, or documented significant delays in payment by the
certified reinsurer, lead the director 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 director, the certified reinsurer may meet the security
requirements applicable to its new rating on a prospective basis, but the
director 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 director, the director 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 director, the assuming insurer shall post security
pursuant to section 1105 of the code, MCL 500.1105, 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 pursuant to section 1103(4) of
the code, MCL 500.1103, and
R 500.1132, the director 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 3 months for all reinsurance ceded to that
certified reinsurer, unless the reinsurance is found by the director to be at
high risk of uncollectibility.
(15) All of the following apply to the
recognition of a jurisdiction as a qualified jurisdiction:
(a) If, upon conducting an evaluation under
this rule with respect to the reinsurance supervisory system of any non-United
States assuming insurer, the director determines that the jurisdiction
qualifies to be recognized as a qualified jurisdiction, the director shall
publish notice and evidence of such recognition in an appropriate manner. The
director may establish a procedure to withdraw recognition of those
jurisdictions that are no longer qualified.
(b) 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 director 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 director shall
determine the appropriate approach for evaluating the qualifications of those
jurisdictions and create and publish a list of jurisdictions for which
reinsurers may be approved by the director as eligible for certification. A
qualified jurisdiction must agree to share information and cooperate with the
director 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 director, include,
but are not limited to, all of the following:
(i) The framework under which the assuming
insurer is regulated.
(ii) The
structure and authority of the domiciliary regulator with regard to solvency
regulation requirements and financial surveillance.
(iii) The substance of financial and
operating standards for assuming insurers in the domiciliary
jurisdiction.
(iv) 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.
(v) The domiciliary
regulator's willingness to cooperate with United States regulators in general
and the director in particular.
(vi) The history of performance by assuming
insurers in the domiciliary jurisdiction.
(vii) Any documented evidence of substantial
problems with the enforcement of final United States judgments in the
domiciliary jurisdiction. A jurisdiction is not considered to be a qualified
jurisdiction if the director has determined that it does not adequately and
promptly enforce final United States judgments or arbitration awards.
(viii) 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.
(ix) Any other
matters considered relevant by the director.
(c) A list of qualified jurisdictions is
published through the NAIC committee process. The director shall consider this
list in determining qualified jurisdictions. If the director approves a
jurisdiction as qualified that does not appear on the list of qualified
jurisdictions, the director shall provide thoroughly documented justification
with respect to the criteria provided under subdivision (b)(i) to (ix) of this
subrule.
(d) United States
jurisdictions that meet the requirements for accreditation under the NAIC
financial standards and accreditation program must be recognized as qualified
jurisdictions.
(16) All
of the following apply to the recognition of certification issued by an NAIC
accredited jurisdiction:
(a) If an applicant
for certification has been certified as a reinsurer in an NAIC accredited
jurisdiction, the director 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 approved by the director and
additional information as the director requires. The assuming insurer must be
considered to be a certified reinsurer in this state.
(b) Any change in the certified reinsurer's
status or rating in the other jurisdiction applies automatically in this state
as of the date it takes effect in the other jurisdiction. The certified
reinsurer shall notify the director of any change in its status or rating
within 10 days after receiving notice of the change.
(c) The director may withdraw recognition of
the other jurisdiction's rating at any time and assign a new rating pursuant to
subrule (14)(a) of this rule.
(d)
The director may withdraw recognition of the other jurisdiction's certification
at any time, with written notice to the certified reinsurer. Unless the
director suspends or revokes the certified reinsurer's certification under
subrule (14)(a) of this rule, the certified reinsurer's certification remains
in good standing in this state for a period of 3 months, which must be extended
if additional time is necessary to consider the assuming insurer's application
for certification in this state.
(17) In addition to the clauses required
under
R
500.1127, reinsurance contracts entered into or
renewed under this rule must include a proper funding clause requiring 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 rule for reinsurance ceded to the certified reinsurer.
(18) The director shall comply with all
reporting and notification requirements that may be established by the NAIC
with respect to certified reinsurers and qualified jurisdictions.
