Current through Register Vol. 54, No. 44, November 2, 2024
(a) For a
domestic ceding insurer to qualify for full financial statement credit for
reinsurance ceded to a certified reinsurer, the certified reinsurer shall
maintain security in a form acceptable to the Commissioner and consistent with
section 319.1(b) of the act (40 P. S. §
442.1(b)) or in a
multibeneficiary trust in accordance with §
161.3(3)(vii)(B)
(relating to credit for reinsurance) except that:
(1) If a certified reinsurer maintains a
trust to fully secure its obligations subject to §
161.3(3)(vii) and
chooses to secure its obligations incurred as a certified reinsurer in the form
of a multibeneficiary trust, the certified reinsurer shall maintain separate
trust accounts for its obligations incurred under reinsurance agreements issued
or renewed as a certified reinsurer with reduced security as permitted by this
paragraph or comparable laws of other United States jurisdictions and for its
obligations subject to §
161.3(3)(vii)(B).
It shall be a condition to the grant of certification under this subsection
that the certified reinsurer shall have bound itself, by the language of the
trust and agreement with the chief regulatory official with principal
regulatory oversight of each trust account, to fund, upon termination of a
trust account, out of the remaining surplus of the trust any deficiency of
another trust account.
(2) The
minimum trusteed surplus requirements provided in §
161.3(3)(vii)are
not applicable with respect to a multibeneficiary trust maintained by a
certified reinsurer for the purpose of securing obligations incurred under this
paragraph, except that the trust must maintain a minimum trusteed surplus of
$10 million.
(b) The
allowable credit allowed a ceding insurer must be based upon the security held
by or on behalf of the ceding insurer and shall be calculated in accordance
with the following requirements:
(1) For full
credit to be allowed, the amount of security must correspond with the rating
assigned by the Commissioner to the certified reinsurer under §
161.3a(a)(3)
(relating to requirements for certified reinsurers) as follows:
| Rating | Security required |
| Secure-1 | 0% |
| Secure-2 | 10% |
| Secure-3 | 20% |
| Secure-4 | 50% |
| Secure-5 | 75% |
| Vulnerable-6 | 100% |
(2)
Affiliated reinsurance transactions will receive the same opportunity for
reduced security requirements as other reinsurance transactions.
(3) The Commissioner will require the
certified reinsurer to post 100% 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) To facilitate the prompt payment of
claims, a certified reinsurer will not be required to post security for
catastrophe recoverables for 1 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. When determining
what constitutes a catastrophic occurrence, the Commissioner will consult with
the NAIC and consider both natural and human events. The 1-year deferral period
is contingent upon the certified reinsurer continuing to pay claims in a timely
manner in compliance with its contractual obligations in the reinsurance
agreement under which the claims are ceded. 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:
| Line 1: | Fire |
| Line 2: | Allied Lines |
| Line 3: | Farmowners multiple peril |
| Line 4: | Homeowners multiple peril |
| Line 5: | Commercial multiple peril |
| Line 9: | Inland Marine |
| Line 12: | Earthquake |
| Line 21: | Auto physical damage |
(c) With respect to obligations incurred by a
certified reinsurer, if the security is insufficient, the Commissioner will
reduce the allowable credit by an amount proportionate to the deficiency and
has the discretion to impose further reductions in allowable credit upon
finding that there is a material risk that the certified reinsurer's
obligations will not be paid in full when due.
(d) For purposes of calculating the allowable
credit under this section, a certified reinsurer whose certification has been
terminated for any reason shall be treated as a certified reinsurer required to
secure 100% of its obligations.
(1) As used in
this subsection, "terminated" refers to revocation, suspension, voluntary
surrender and inactive status.
(2)
If the Commissioner continues to assign a higher rating as permitted by this
section, this requirement does not apply to a certified reinsurer in inactive
status or to a reinsurer whose certification has been suspended.
(e) Based on the analysis
conducted under §
161.3a(a)(3)(ii)(B)(V)
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 will, at a minimum, increase
the security the certified reinsurer is required to post by one rating level
under §
161.3a(a)(3)(ii)(B)(I)
if the Commissioner finds either of the following:
(1) More than 15% 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.
(2) The
aggregate amount of reinsurance recoverables on paid losses not in dispute that
are overdue by 90 days or more exceeds $50 million.
(f) This section does not prohibit the
parties to a reinsurance agreement from agreeing to provisions establishing
security requirements that exceed the minimum security requirements under this
section or under §
161.8a (relating to reinsurance
contracts).
The provisions of this §161.3b 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).
