Current through August 26, 2024
(1) PURPOSE. This section implements and
interprets ss.
601.42,
611.19(1),
618.21,
623.03,
623.04,
627.05,
628.34(2),
632.14,
and
632.17,
Stats., for the purpose of establishing minimum requirements for the
transaction of a type of surety insurance known as municipal bond
insurance.
(2)SCOPE. This section
shall apply to the underwriting, marketing, rating, accounting and reserving
activities of insurers which write municipal bond insurance.
(3)DEFINITIONS.
(a) "Annual statement" means the fire and
casualty annual statement form specified in s.
Ins 7.02, Forms 22-010 and 22-011.
(b) "Contingency reserve" means a reserve
established for the protection of policyholders covered by policies insuring
municipal bonds against the effect of excessive losses occurring during adverse
economic cycles.
(c) "Cumulative
net liability" means one-third of one percent of the insured unpaid principal
and insured unpaid interest covered by in-force policies of municipal bond
insurance.
(d) "Municipal bonds"
means securities which are issued by or on behalf of or are paid or guaranteed
by:
1. Any state, territory or possession of
the United States of America;
2.
Any political subdivision of any such state, territory or possession;
or
3. Any agency, authority or
corporate or other instrumentality of any one or more of the foregoing, or
which are guaranteed by any of the foregoing.
(e) "Municipal bond insurance" means a type
of surety insurance authorized by s.
Ins 6.75(2)
(g) which is limited to the guaranteeing of
the performance and obligations of municipal bonds.
(f) "Municipal bond insurer" means an insurer
which issues municipal bond insurance.
(g) "Total net liability" means the average
annual amount due, net of reinsurance, for principal and interest on the
insured amount of any one issue of municipal bonds.
(h) "Person" means any individual,
corporation for profit or not for profit, association, partnership or any other
legal entity.
(i) "Policyholders'
surplus" means an insurer's net worth, the difference between its assets and
liabilities, as reported in its annual statement.
(4)MINIMUM CAPITAL OR PERMANENT SURPLUS. The
minimum capital or permanent surplus of a municipal bond insurer shall be $2
million for an insurer first authorized to do business in Wisconsin on or
before January 1, 1984, or the amount required by statute or administrative
order after that date for other municipal bond insurers.
(5)LIMITATIONS AND RESTRICTIONS.
(a) Policies of municipal bond insurance
shall be issued only to provide coverage on bonds of the type defined in sub.
(3) (d).
(b) A municipal bond
insurer may not have total net liability in respect to any one issue of
municipal bonds in excess of an amount representing 10% of its policyholders'
surplus.
(c) A municipal bond
insurer may not have outstanding cumulative net liability, under in-force
policies of municipal bond insurance, in an amount which exceeds the sum of:
1. Its capital and surplus, plus
2. The contingency reserve under sub.
(9).
(d) A municipal
bond insurer may not have more than 25% of the principal amount which it has
insured represented by the principal amount of municipal bonds issued primarily
to finance property for use in a trade or business carried on by any person
other than a governmental unit, and secured by a pledge of payments to be made
by the person or of revenues to be derived from the trade or
business.
(6)PREMIUM.
The total consideration charged for municipal bond insurance policies,
including policy and other fees or similar charges, shall be considered premium
and shall be subject to the reserve requirements of subs. (8) and
(9).
(7)FINANCIAL STATEMENTS AND
REPORTING.
(a) The financial condition and
operations of a municipal bond insurer shall be reported on the annual
statement.
(b) The total
contingency reserve required by sub. (9) shall be reported as a liability in
the annual statement. This liability may be reported as unpaid losses or other
appropriately labeled write-in item. Appropriate entries shall be made in the
underwriting and investment exhibit-statement of income of the annual
statement. The change in contingency reserve for the year shall be reported in
the annual statement as a reduction of or a deduction from underwriting income.
If the contingency reserve is recorded as a loss liability, the change in the
reserve shall be excluded from loss development similar to fidelity and surety
losses incurred but not reported.
(c) A municipal bond insurer shall compute
and maintain adequate case basis loss reserves to be reported in the
underwriting and investment exhibit, unpaid losses and loss adjustment
expenses, of the annual statement. The method used to determine the loss
reserve shall accurately reflect loss frequency and loss severity and shall
include components for claims reported and unpaid, and for claims incurred but
not reported, provided:
1. No deduction may be
made for anticipated salvage in computing case basis loss reserves.
2. If the amount of insured principal and
interest on a defaulted issue of municipal bonds which is due and payable over
the period of the next 3 years exceeds 10% of a municipal bond insurer's
capital, surplus and contingency reserve, its case basis reserve so established
shall be supported by a report from a qualified independent source.
(8)UNEARNED PREMIUM
RESERVE. A municipal bond insurer shall compute and maintain an unearned
premium reserve on an annual or on a monthly pro rata basis on all unexpired
coverage, except that in the case of premiums paid more than one year in
advance, the premium shall be earned proportionally with the expiration of
exposure except as provided under sub. (12).
(9)CONTINGENCY RESERVE.
(a) A municipal bond insurer shall establish
a contingency reserve which shall consist of allocations of sums representing
50% of the earned premium on policies of municipal bond insurance except as
provided under sub. (12).
(b) The
contingency reserve established by this subsection shall be maintained for 240
months. That portion of the contingency reserve established and maintained for
more than 240 months shall be released and may no longer constitute part of the
contingency reserve except as provided under sub. (12).
(c) Subject to the approval of the
commissioner, withdrawals may be made from the contingency reserve in any year
in which the actual incurred losses on municipal bond insurance policies exceed
35% of the earned premiums on municipal bonds insurance policies except as
provided under sub. (12).
(d) A
municipal bond insurer may invest the contingency reserve in tax and loss bonds
purchased pursuant to (e). The contingency reserve shall otherwise be invested
only in classes of securities or types of investments specified in s.
620.22(1),
Stats., except as provided under sub. (12).
(10)CONFLICTS OF INTEREST PROHIBITED. No
municipal bond insurer may pay any commission or make any gift of money,
property or other valuable thing to any employee, agent, or representative of
any issuer of municipal bonds or to any employee, agent or representative of
any underwriter of any issue of the bonds as an inducement to the purchase of,
or at any time there is in force, a policy insuring bonds, and no employee,
agent or representative of the insurer or underwriter shall receive any payment
or gift. However, violation of the provisions of this subsection does not
render void the municipal bond insurance policy.
(11)TRANSITION. Unearned premium reserves and
contingency loss reserves shall be computed and maintained on risks insured
after the effective date of this section as required by subs. (8) and
(9).
(12)LAWS OR REGULATIONS OF
OTHER JURISDICTIONS. Whenever the laws or regulations of another jurisdiction
in which a municipal bond insurer is licensed, require a larger unearned
premium reserve or a larger contingency reserve in the aggregate than that set
forth in this section, the establishment and maintenance of the larger
aggregated, unearned premium reserve and contingency reserve complies with this
rule.
