Pennsylvania Code
Title 31 - INSURANCE
Part VIII - Miscellaneous Provisions
Chapter 161 - REQUIREMENTS FOR QUALIFIED AND CERTIFIED REINSURERS
Section 161.3a - Requirements for certified reinsurers
Universal Citation: 31 PA Code ยง 161.3a
Current through Register Vol. 54, No. 44, November 2, 2024
(a) Certification as a certified reinsurer. To be eligible for certification as a certified reinsurer, the assuming insurer shall meet the following requirements:
(1) The assuming insurer shall be domiciled
and licensed to transact insurance or reinsurance in a qualified jurisdiction.
(i) In accordance with reporting and
notification requirements that may be established by the NAIC, the Commissioner
will create a list of qualified jurisdictions, which will be published annually
in the Pennsylvania Bulletin.
(ii) United States jurisdictions that meet
the requirement for accreditation under the NAIC financial standards and
accreditation program will be recognized as qualified jurisdictions.
(iii) To determine whether the domiciliary
jurisdiction of an alien assuming insurer is eligible to be recognized as a
qualified jurisdiction, the Commissioner will evaluate:
(A) The appropriateness and effectiveness of
the reinsurance supervisory system of the jurisdiction, initially and on an
ongoing basis.
(B) 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.
(C) Whether the
jurisdiction is a qualified jurisdiction as determined by the NAIC through the
committee process. If the Commissioner approves a jurisdiction as qualified
that does not appear on the NAIC's list of qualified jurisdictions, the
Commissioner will provide thoroughly documented justification of
reasons.
(D) The framework under
which the assuming insurer is regulated.
(E) The structure and authority of the
domiciliary regulator with regard to solvency regulation requirements and
financial surveillance.
(F) The
substance of financial and operating standards for assuming insurers in the
domiciliary jurisdiction.
(G) 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.
(H) The
domiciliary regulator's willingness to cooperate with United States regulators
in general and the Commissioner in particular.
(I) The history of performance by assuming
insurers in the domiciliary jurisdiction.
(J) 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.
(iv) A
domiciliary jurisdiction of an alien assuming insurer is not eligible to be
recognized as a qualified jurisdiction unless:
(A) The jurisdiction has agreed to share
information and cooperate with the Commissioner with respect to certified
reinsurers domiciled within that jurisdiction.
(B) The jurisdiction adequately and promptly
enforces final United States judgments and arbitration awards.
(v) If a certified reinsurer's
domiciliary jurisdiction ceases to be a qualified jurisdiction, the
Commissioner may withdraw recognition of that jurisdiction.
(2) The assuming insurer shall
maintain minimum capital and surplus, or its equivalent, in an amount to be
determined acceptable by the Commissioner in accordance with the following
standards:
(i) The assuming insurer must
maintain capital and surplus, or its equivalent, of at least $250 million
calculated in accordance with subparagraph (ii). 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 million and a central fund containing a
balance of at least $250 million.
(ii) Certified reinsurers not domiciled in
the United States shall file with the Commissioner audited financial statements
(audited United States Generally Accepted Accounting Principles (GAAP) basis if
available, audited International Financial Reporting Standards (IFRS) basis
statements are allowed but must include an audited footnote reconciling equity
and net income to a United States GAAP basis or, with the permission of the
state insurance commissioner, audited IFRS statements with reconciliation to
United States GAAP certified by an officer of the company), regulatory filings
and actuarial opinion (as filed with the non-United States jurisdiction
supervisor). Upon the initial application for certification, the Commissioner
will consider audited financial statements for the last 3 years filed with its
non-United States jurisdiction supervisor.
(3) The assuming insurer shall maintain
financial strength ratings from two or more rating agencies deemed acceptable
by the Commissioner in accordance with subparagraph (i) and be rated by the
Commissioner in accordance with subparagraph (ii).
(i)
Financial strength ratings.
The financial strength ratings must be based on interactive
communication between the rating agency and the assuming insurer and may not be
based solely on publicly available information. These ratings will be one
factor used by the Commissioner in determining the rating assigned under
subparagraph (ii). Acceptable rating agencies include Standard & Poor's,
Moody's Investors Service, Fitch Ratings, A.M. Best Company or another
Nationally recognized statistical rating organization.
(ii)
Assignment and publication of
rating. The Commissioner will assign a rating to each certified
reinsurer and publish a list of certified reinsurers and their ratings annually
in the Pennsylvania Bulletin in accordance with the following:
(A) Each certified reinsurer will be rated on
a legal entity basis, with due consideration being given to the group rating
when appropriate, except that an association including incorporated and
individual unincorporated insurers that have been approved to do business as a
single certified reinsurer may be evaluated on the basis of its group
rating.
(B) Factors that may be
considered as part of the evaluation process include the following:
(I) 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 following table. The Commissioner will 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 |
(II)
The business practices of the certified reinsurer in dealing with its ceding
insurers, including its record of compliance with reinsurance contractual terms
and obligations.
(III) 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).
(IV) For certified
reinsurers not domiciled in the United States, a review annually of Form CR-F
(for property/casualty reinsurers) or Form CR-S (for life and health
reinsurers) as developed by the NAIC.
(V) 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.
(VI) Regulatory actions against the certified
reinsurer.
(VII) The report of the
independent auditor on the financial statements of the insurance enterprise, on
the basis described in subclause (VIII).
(VIII) For certified reinsurers not domiciled
in the United States, audited financial statements (audited United States GAAP
basis if available, audited IFRS basis statements are allowed but must include
an audited footnote reconciling equity and net income to a United States GAAP
basis or, with the permission of the state insurance commissioner, audited IFRS
statements with reconciliation to United States GAAP certified by an officer of
the company), regulatory filings and actuarial opinion (as filed with the
non-United States jurisdiction supervisor). Upon the initial application for
certification, the Commissioner will consider audited financial statements for
the last 3 years filed with its non-United States jurisdiction
supervisor.
(IX) The liquidation
priority of obligations to a ceding insurer in the certified reinsurer's
domiciliary jurisdiction in the context of an insolvency proceeding.
(X) A certified reinsurer's participation in
a 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.
(iii)
Change in rating or revocation
of certification.
(A) In the case of
a downgrade by a rating agency or other disqualifying circumstance, the
Commissioner will upon written notice assign a new rating to the certified
reinsurer in accordance with subparagraph (ii)(B).
(B) The Commissioner has the authority to
suspend, revoke or otherwise modify a certified reinsurer's certification in
accordance with the procedures in §
161.6 (relating to revocation of
reinsurer qualification or 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 will require the certified reinsurer to post security under the
previously applicable security requirements as to the 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 will 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) The assuming insurer
shall agree to submit to the jurisdiction of the Commonwealth, appoint the
Commissioner as its agent for service of process in this Commonwealth and agree
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 assuming insurer shall submit a properly
executed Form CR-1 as evidence of its submission to the jurisdiction of the
Commonwealth, appointment of the Commissioner as an agent for service of
process in this Commonwealth 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 Commissioner will not certify an 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.
(5) The assuming insurer
shall agree to meet applicable information filing requirements both with
respect to an initial application for certification and on an ongoing basis.
Information submitted by certified reinsurers that is not otherwise public
information subject to disclosure is confidential and privileged and is not
subject to subpoena, discovery, the Right-to-Know Law (65 P. S.
§§ 67.101-67.3104) or admissible in
evidence in any private civil action. The applicable information filing
requirements are as follows:
(i) Notification
within 10 days of regulatory actions taken against the certified reinsurer, a
change in the provisions of its domiciliary license or a change in rating by an
approved rating agency, including a statement describing the changes and the
reasons.
(ii) Annual submission of
Form CR-F or CR-S, as applicable per NAIC instructions.
(iii) Annual submission of the report of the
independent auditor on the financial statements of the insurance enterprise on
the basis described in subparagraph (iv).
(iv) Annual submission of audited financial
statements (audited United States GAAP basis if available, audited IFRS basis
statements are allowed but must include an audited footnote reconciling equity
and net income to a United States GAAP basis or, with the permission of the
state insurance commissioner, audited IFRS statements with reconciliation to
United States GAAP certified by an officer of the company), regulatory filings
and actuarial opinion (as filed with the certified reinsurer's supervisor).
Upon the initial certification, audited financial statements for the last 3
years filed with the certified reinsurer's supervisor.
(v) At least annually, filing of an updated
list of disputed and overdue reinsurance claims regarding reinsurance assumed
from United States domestic ceding insurers.
(vi) 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.
(b) Certification of an association as a certified reinsurer. In addition to meeting the requirements of subsection (a), an association, including incorporated and individual unincorporated insurers, may be a certified reinsurer if it satisfies the following additional requirements:
(1) The association shall satisfy its minimum
capital and surplus requirements through the capital and surplus equivalents
(net of liabilities) of the association and its members, which includes a joint
central fund that may be applied to any unsatisfied obligation of the
association or any of its members, in an amount determined by the Commissioner
to provide adequate protection.
(2)
The incorporated members of the association may not be engaged in business
other than underwriting as a member of the association and shall be subject to
the same level of regulation and solvency control by the association's
domiciliary regulator as are the unincorporated members.
(3) Within 90 days after its financial
statements are due to be filed with the association's domiciliary regulator,
the association shall provide to the Commissioner an annual certification by
the association's domiciliary regulator of the solvency of each insurer member
or, if a certification is unavailable, financial statements, prepared by
independent public accountants, of each insurer member of the
association.
(c) Deferment of certification. 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. The assuming insurer will be considered to be a certified reinsurer in this Commonwealth in accordance with the following:
(1) The
assuming insurer shall submit a properly executed Form CR-1 to the
Commissioner.
(2) A change in the
certified reinsurer's status or rating in the other jurisdiction applies
automatically in this Commonwealth as of the date it takes effect in the other
jurisdiction. The certified reinsurer shall notify the Commissioner of a 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 subsection (a)(3)(ii).
(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 revokes the certified
reinsurer's certification in accordance with § 161.6, the certified
reinsurer's certification will remain in good standing in this Commonwealth for
3 months, which will be extended if additional time is necessary to consider
the assuming insurer's application for certification in this
Commonwealth.
(d) Inactive status certification. A certified reinsurer that ceases to assume new business in this Commonwealth may request to maintain its certification in inactive status to continue to qualify for a reduction in security for its in-force business. An inactive certified reinsurer shall continue to comply with the applicable requirements of this section and the Commissioner will assign a rating that takes into account, if relevant, the reasons why the reinsurer is not assuming new business.
(e) Certification procedure.
(1) The Department will post notice of an
application for certification in the Pennsylvania Bulletin
promptly upon receipt and will include instructions on how members of the
public may respond to the application. The Commissioner will not take final
action on the application until at least 30 days after posting the notice in
the Pennsylvania Bulletin.
(2) If the Department is satisfied that an
assuming insurer has met the conditions for certification and determines to
designate the assuming insurer as a certified reinsurer, the Department will
issue written notice of the designation to the assuming insurer. The rating
assigned the certified reinsurer in accordance with subsection (a)(3)(ii) will
be included in the notice.
The provisions of this §161.3a issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. §§ 66, 186, 411 and 412); and section 319.1 of The Insurance Company Law of 1921 (40 P. S. § 442.1).
This section cited in 31 Pa. Code § 161.3 (relating to credit for reinsurance); and 31 Pa. Code § 161.3b (relating to calculation of credit for reinsurance regarding obligations secured with certified reinsurers).
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