North Dakota Administrative Code
Title 45 - Insurance, Commissioner of
Article 45-03 - Regulation of Insurance Companies
Chapter 45-03-07.1 - Credit for Reinsurance Model Regulation
Section 45-03-07.1-04.1 - Credit for reinsurance - Certified reinsurers
Universal Citation: ND Admin Code ยง 45-03-07.1-04.1
Current through Supplement No. 394, October, 2024
1. Pursuant to subsection 6 of North Dakota Century Code Section 26.1-31.2-01, 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 subsection 6 of North Dakota Century Code section 26.1-31.2-01 and section 26.1-31.2-02 and North Dakota Administrative Code section 45-03-07.1-07, 45-03-07.1-08, or 45-03-07.1-09. The amount of security required in order for full credit to be allowed shall correspond with the following requirements:
|
a. Ratings |
Security Required |
|
Secure - 1 |
0% |
|
Secure - 2 |
10% |
|
Secure - 3 |
20% |
|
Secure - 4 |
50% |
|
Secure - 5 |
75% |
|
Vulnerable - 6 |
100% |
b. Affiliated
reinsurance transactions shall receive the same opportunity for reduced
security requirements as all other reinsurance transactions.
c. The commissioner shall require the
certified reinsurer to post one hundred 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.
d. 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 national association of insurance
commissioners annual financial statement related specifically to the
catastrophic occurrence will be included in the deferral:
(1) Line 1: Fire.
(2) Line 2: Allied lines.
(3) Line 3: Farmowners multiple
peril.
(4) Line 4: Homeowners
multiple peril.
(5) Line 5:
Commercial multiple peril.
(6) Line
9: Inland marine.
(7) Line 12:
Earthquake.
(8) Line 21: Auto
physical damage.
e.
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.
f. 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.
2. Certification procedure.
a. The commissioner shall post notice on the
insurance 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 commissioner may not take final action on the
application until at least thirty days after posting the notice required by
this subdivision.
b. The
commissioner shall issue written notice to an assuming insurer that has made
application and been approved as a certified reinsurer. Included in the notice
shall be the rating assigned the certified reinsurer in accordance with
subsection 1. The commissioner shall publish a list of all certified reinsurers
and their ratings.
c. In order to
be eligible for certification, the assuming insurer shall meet the following
requirements:
(1) The assuming insurer must
be domiciled and licensed to transact insurance or reinsurance in a qualified
jurisdiction, as determined by the commissioner pursuant to subsection
3.
(2) The assuming insurer must
maintain capital and surplus, or its equivalent, of no less than two hundred
fifty million dollars calculated in accordance with paragraph 8 of subdivision
d. 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 two hundred fifty
million dollars and a central fund containing a balance of at least two hundred
fifty million dollars.
(3) 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:
(a)
Standard & Poor's;
(b) Moody's
Investors Service;
(c) Fitch
Ratings;
(d) A.M. Best Company;
or
(e) Any other nationally
recognized statistical rating organization.
(4) The certified reinsurer must comply with
any other requirements reasonably imposed by the commissioner.
d. 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. Factors that may be considered as part of the evaluation
process include the following:
(1) 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
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 |
(2)
The business practices of the certified reinsurer in dealing with its ceding
insurers, including its record of compliance with reinsurance contractual terms
and obligations;
(3) For certified
reinsurers domiciled in the United States, a review of the most recent
applicable national association of insurance commissioners annual statement
blank, either schedule F for property and casualty reinsurers, or schedule S
for life and health reinsurers;
(4)
For certified reinsurers not domiciled in the United States, a review annually
of form CR-F for property and casualty reinsurers, or form CR-S for life and
health reinsurers, attached as exhibits to this chapter;
(5) 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 ninety days past due
or are in dispute. with specific attention given to obligations payable to
companies that are in administrative supervision or receivership;
(6) Regulatory actions against the certified
reinsurer;
(7) The report of the
independent auditor on the financial statements of the insurance enterprise, on
the basis described in paragraph 8;
(8) 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 commissioner will consider audited financial statements for the last two years filed with its non-United States jurisdiction supervisor;
(9) The liquidation priority of obligations
to a ceding insurer in the certified reinsurer's domiciliary jurisdiction in
the context of an insolvency proceeding;
(10) 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
(11) Any other information deemed relevant by
the commissioner.
e.
Based on the analysis conducted under paragraph 5 of subdivision d 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 paragraph 1
of subdivision d if the commissioner finds that:
(1) More than fifteen percent of the
certified reinsurer's ceding insurance clients have overdue reinsurance
recoverables on paid losses of ninety days or more which are not in dispute and
which exceed one hundred thousand dollars for each cedent; or
(2) The aggregate amount of reinsurance
recoverables on paid losses which are not in dispute that are overdue by ninety
days or more exceeds fifty million dollars.
f. The assuming insurer must submit a
properly executed form CR-1, attached as an exhibit to this chapter, 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 one hundred 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.
g. 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 are not
otherwise public information subject to disclosure shall be exempted from
disclosure under North Dakota Century Code section 44-04-18 and shall be
withheld from public disclosure. The applicable information filing requirements
are, as follows:
(1) Notification within ten
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 therefor;
(2) Annually,
form CR-F or CR-S, as applicable;
(3) Annually, the report of the independent
auditor on the financial statements of the insurance enterprise, on the basis
described in paragraph 4;
(4)
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;
(5) At least annually, an updated
list of all disputed and overdue reinsurance claims regarding reinsurance
assumed from United States domestic ceding insurers;
(6) 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
(7) Any other
information that the commissioner may reasonably require.
h. Change in rating or revocation of
certification.
(1) 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 paragraph 1 of subdivision d.
(2) 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.
(3) 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.
(4) Upon
revocation of the certification of a certified reinsurer by the commissioner,
the assuming insurer shall be required to post security in accordance with
section 45-03-07.1-06 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 section 45-03-07.1-04, the commissioner may
allow additional credit equal to the ceding insurer's pro rata share of the
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.
3. Qualified jurisdictions.
a. 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 the recognition in an
appropriate manner. The commissioner 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 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
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 the following:
(1) The framework under
which the assuming insurer is regulated.
(2) The structure and authority of the
domiciliary regulator with regard to solvency regulation requirements and
financial surveillance.
(3) The
substance of financial and operating standards for assuming insurers in the
domiciliary jurisdiction.
(4) 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.
(5) The
domiciliary regulator's willingness to cooperate with United States regulators
in general and the commissioner in particular.
(6) The history of performance by assuming
insurers in the domiciliary jurisdiction.
(7) 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.
(8) 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.
(9) Any other matters deemed relevant by the
commissioner.
c. A list
of qualified jurisdictions shall be published through the national association
of insurance commissioners 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 paragraphs 1 through
9 of subdivision b.
d. United
States jurisdictions that meet the requirements for accreditation under the
national association of insurance commissioners financial standards and
accreditation program shall be recognized as qualified jurisdictions.
4. Recognition of certification issued by a national association of insurance commissioners accredited jurisdiction.
a. If an applicant for
certification has been certified as a reinsurer in a national association of
insurance commissioners 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 and the additional information as the commissioner
requires. The assuming insurer shall 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 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 ten days after receiving notice of the
change.
c. The commissioner may
withdraw recognition of the other jurisdiction's rating at any time and assign
a new rating in accordance with paragraph 1 of subdivision g of subsection
2.
d. 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 paragraph 2 of
subdivision g of subsection 2, 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.
5. Mandatory funding clause. In addition to the clauses required under section 45-03-07.1-10, 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.
6. The commissioner shall comply with all reporting and notification requirements that may be established by the national association of insurance commissioners with respect to certified reinsurers and qualified jurisdictions.
General Authority: NDCC 26.1-31.2-04
Law Implemented: NDCC 26.1-31.2
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