Rules & Regulations of the State of Tennessee
Title 0780 - Commerce and Insurance
Subtitle 0780-01 - Insurance Division
Chapter 0780-01-63 - CREDIT FOR REINSURANCE
Section 0780-01-63-.07 - CREDIT FOR REINSURANCE - CERTIFIED REINSURERS
Universal Citation: TN Comp Rules and Regs 0780-01-63-.07
Current through September 24, 2024
(1) Pursuant to T.C.A. § 56-2-208(b)(6), 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 paragraph. 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 T.C.A. §§ 56-2-208(b)(6), 56-2-209(a) and (b) and either Rule 0780-01-63-.11, Rule 0780-01-63-.12 or Rule 0780-01-63-.13. 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 (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.
(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 (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. The one (1) 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: Farm owners 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 rule 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 rule with
respect to losses incurred and reserves reported from and after the effective
date of the amendment or the new contract.
(f) Nothing in this rule 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 Rule.
(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 (30) days after posting the notice required
by this subparagraph.
(b) 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 Rule
0780-01-63-.07(1). The commissioner shall publish a list of all certified
reinsurers and their ratings on the insurance department's website.
(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 Rule 0780-01-63-.07(3).
2. The assuming insurer must maintain capital
and surplus, or its equivalent, of no less than two hundred fifty million
dollars ($250,000,000) calculated in accordance with 0780-01-63-.07(2)(d) 8.
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
($250,000,000) and a central fund containing a balance of at least two hundred
fifty million dollars ($250,000,000).
3. The assuming insurer must maintain
financial strength ratings from two (2) 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 &
Poor's;
(ii) Moody's Investors
Service;
(iii) Fitch
Ratings;
(iv) A.M. Best Company;
or
(v) 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, but are not limited to, 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 (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 |
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/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/casualty reinsurers), attached as Appendix B to this
chapter and incorporated herein by reference, or Form CR-S (for life and health
reinsurers), attached as Appendix C to this chapter and incorporated herein by
reference;
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 (90) 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 part 8., below;
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 (2) 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 Rule 0780-01-63-.07(2)(d) 5. 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 Rule
0780-01-63-.07(2)(d) 1. if the commissioner finds that:
1. More than fifteen percent (15%) of the
certified reinsurer's ceding insurance clients have overdue reinsurance
recoverables on paid losses of ninety (90) days or more which are not in
dispute and which exceed one hundred thousand dollars ($100,000) for each
cedent; or
2. The aggregate amount
of reinsurance recoverables on paid losses which are not in dispute that are
overdue by ninety (90) days or more exceeds fifty million dollars
($50,000,000).
(f) The
assuming insurer must submit a properly executed Form CR-1 (adopted as Appendix
D of this chapter and incorporated herein by reference) as evidence of its
submission to the jurisdiction of this state, appointment of the commissioner
as an agent for the service of process in this state, and agreement to provide
security for one hundred percent (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 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. The applicable information filing requirements are, as
follows:
1. Notification within ten (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;
2. Annually,
Form CR-F (Appendix B of this chapter) or CR-S (Appendix C of this chapter), as
applicable;
3. Annually, the report
of the independent auditor on the financial statements of the insurance
enterprise, on the basis described in part 4., below.
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 (2)
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 Rule 0780-01-63-.07(2)(d) 1.
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 Rule, 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 Rule
0780-01-63-.10
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 Rule
0780-01-63-.06,
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 (3) 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 Rule 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 on the
insurance department's website. 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 such jurisdictions, and create and publish
on the insurance department's website 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:
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 Rule 0780-01-
63-.07(3)(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
AR-1 (Appendix A of this chapter) and such 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 (10) 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 Rule 0780-01-63-.07(2)(h).
(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 0780-01-63-.07(2)(h),
the certified reinsurer's certification shall remain in good standing in this
state for a period of three (3) 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 Rule 0780-01-63-.14, reinsurance contracts entered into or renewed under this rule 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 rule 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.
Authority: T.C.A. §§ 56-2-208, 56-2-208(5), 56-2-209, 56-2-209(e), and 56-2-301.
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