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Regular Session, 2012
HOUSE BILL NO. 849
BY REPRESENTATIVE TALBOT
INSURANCE: Provides relative to reinsurance
AN ACT1
To amend and reenact R.S. 22:651 and 652(2) and (3)(a), relative to reinsurance credits; to2
clarify terms, duties, and obligations; to provide for new accreditation requirements;3
to provide relative to the assumption of insurers' duties and obligations; to provide4
relative to trust requirements; and to provide for related matters.5
Be it enacted by the Legislature of Louisiana:6
Section 1. R.S. 22:651 and 652(2) and (3)(a) are hereby amended and reenacted to7
read as follows: 8
§651. Reinsurance credits9
A. Credit The commissioner shall allow credit for reinsurance shall be10
allowed to a domestic ceding insurer as either an asset or deduction from liability11
when the assuming insurer satisfies the requirements of Subsection B, C, D, or E, or12
F of this Section. If the requirements of Subsection D are satisfied, the requirements13
of Subsection F of this Section shall also be satisfied. The commissioner shall allow14
credit under Subsection B or C of this Section only as respects cessions of those15
kinds or classes of business that the assuming insurer is licensed or otherwise16
permitted to write or assume in its state of domicile or, in the case of a United States17
branch of an alien assuming insurer, in the state through which it is entered and18
licensed to transact insurance or reinsurance. The commissioner shall allow the19 HLS 12RS-809 ENGROSSED
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credit for reinsurance pursuant to Subsection D of this Section only if the assuming1
insurer satisfies the requirements of Subsection G of this Section.2
B. Credit shall be allowed The commissioner shall allow credit for3
reinsurance when the reinsurance is ceded to an assuming insurer which is authorized4
in this state. An authorized insurer is one that which holds a certificate of authority5
to transact insurance or reinsurance.6
C. Credit shall also be allowed The commissioner shall allow credit for7
reinsurance when the reinsurance is ceded to an assuming insurer which is accredited8
by the commissioner as a reinsurer in this state. An accredited reinsurer shall be9
approved by the Department of Insurance after filing an application for accreditation,10
and: To be eligible for accreditation and to receive the commissioner's approval of11
its application for accreditation, a reinsurer shall complete each of the following:12
(1) Filing File with the Department of Insurance commissioner evidence of13
its submission to the jurisdiction of this state, and as may be set forth by the14
department in regulations.15
(2) Submission of the reinsurer Submit to the authority of the commissioner16
Department of Insurance to examine its books and records of the reinsurer.17
(3) Demonstration by the reinsurer Demonstrate that the reinsurer it is18
licensed or authorized to transact insurance or reinsurance in, or in the case of a19
United States branch of an alien assuming insurer, is entered through, at least one20
state which that employs standards regarding credit for reinsurance equal to or21
exceeding those applicable under this Subpart.22
(4) Annual filing File annually with the commissioner Department of23
Insurance a true copy of its annual statement filed with the insurance department24
regulator of its state of domicile and a copy of its most recent audited financial25
statement.26
(5) Demonstrate to the satisfaction of the commissioner that it has adequate27
financial capacity to meet its reinsurance obligations and is otherwise qualified to28
assume reinsurance from domestic insurers. The commissioner shall deem that an29 HLS 12RS-809 ENGROSSED
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assuming insurer meets this requirement as of the time of its application if it1
maintains a surplus as regards policyholders in an amount not less than twenty2
million dollars and the commissioner has not denied it accreditation within ninety3
days after submission of its application.4
D.(1)(a) Credit shall also be allowed The commissioner shall allow a5
domestic ceding insurer credit for reinsurance under Paragraph (2) of this Subsection6
when the reinsurance is ceded to an assuming insurer which that maintains a trust7
fund in a qualified United States financial institution, as defined in R.S. 22:653(B),8
for the payment of the valid claims of its United States policyholders and ceding9
insurers, their assigns, and successors in interest. The assuming insurer shall report10
and submit annually to the commissioner information substantially the same as that11
required to be reported on the National Association of Insurance Commissioners12
(NAIC) annual statement form by authorized insurers to enable the commissioner to13
determine the sufficiency of the trust fund. The assuming insurer shall submit to14
examination of its books and records by the commissioner and bear the expense of15
examination.16
(b) Any credit for reinsurance shall not be granted under Paragraph (2) of17
this Subsection unless the form of the trust and amendments to the trust have been18
approved by the Department of Insurance. The trust instrument shall provide that19
contested claims shall be valid and enforceable upon the final order of any court of20
competent jurisdiction in the United States. The trust shall vest legal title to its21
assets in the trustees of the trust for its United States ceding insurers, their assigns,22
and successors in interest. The trust shall be subject to examination as determined23
by the department. The trust described herein shall remain in existence for as long24
as the assuming insurer shall have obligations due under the reinsurance agreements25
subject to the trust.26
(c) Not later than the twenty-eighth day of each February, the trustees of the27
trust established under Paragraph (2) of this Subsection shall provide a written28
report to the department setting forth the balance of the trust and listing the29 HLS 12RS-809 ENGROSSED
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investments of the trust of the preceding calendar year, and shall certify the date of1
termination of the trust, if so planned, or shall certify that the trust shall not expire2
prior to the succeeding December thirty-first.3
(2)(a) The commissioner shall not grant credit for reinsurance under this4
Subsection unless the form of the trust and any amendments to the trust receive the5
approval of either of the following:6
(i) The commissioner of the state of domicile of the trust.7
(ii) The commissioner of another state who, pursuant to the terms of the trust8
instrument, accepts principal regulatory oversight of the trust.9
(b) The assuming insurer shall also file the form of the trust and any trust10
amendments with the commissioner of every domiciliary state of the ceding insurer11
beneficiaries of the trust. The trust instrument shall provide that contested claims12
shall be valid and enforceable upon the final order of any court of competent13
jurisdiction in the United States. The trust shall vest legal title to its assets in its14
trustees for the benefit of the assuming insurer's United States ceding insurers, their15
assigns and successors in interest. The trust and the assuming insurer shall be subject16
to examination as determined by the commissioner.17
(c) The trust shall remain in effect for as long as the assuming insurer has18
outstanding obligations due under the reinsurance agreements subject to the trust. No19
later than the last day of February of each year the trustee of the trust shall report to20
the commissioner in writing the balance of the trust and list the trust's investments21
at the preceding year-end and shall certify the date of termination of the trust, if so22
planned, or certify that the trust will not expire prior to the following thirty-first day23
of December.24
(2)(3)(a) In the case of a single assuming insurer, the trust fund shall consist25
of a trusteed account funds in trust in an amount not less than the assuming insurer's26
liabilities attributable to business written in the United States and, in addition, the27
assuming insurer shall maintain a trusteed surplus of not less than twenty million28
dollars, except as provided in Subparagraph (b) of this Paragraph.29 HLS 12RS-809 ENGROSSED
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(b) At any time after the assuming insurer has permanently discontinued1
underwriting new business secured by the trust for at least three full years, the2
commissioner with principal regulatory oversight of the trust may authorize a3
reduction in the required trusteed surplus, but only after a finding, based on an4
assessment of the risk, that the new required surplus level is adequate for the5
protection of the United States ceding insurers, policyholders, and claimants in light6
of reasonably foreseeable adverse loss development. The risk assessment may7
involve an actuarial review, including an independent analysis of reserves and cash8
flows, and shall consider all material risk factors, including when applicable the lines9
of business involved, the stability of the incurred loss estimates and the effect of the10
surplus requirements on the assuming insurer's liquidity or solvency. The minimum11
required trusteed surplus may not be reduced to an amount less than thirty percent12
of the assuming insurer's liabilities attributable to reinsurance ceded by United States13
ceding insurers covered by the trust. 14
(b) (c) In the case of a group of assuming insurers that includes incorporated15
and individual unincorporated underwriters, the following provisions apply:, the trust16
shall consist of a trusteed account representing the group's liabilities attributable to17
business written in the United States and, in addition, the group shall maintain a18
trusteed surplus of which one hundred million dollars shall be held jointly for the19
benefit of United States ceding insurers of any member of the group. The group20
shall make available to the commissioner an annual certification of the solvency of21
each underwriter by its domiciliary regulator and its independent public accountants.22
(i) For reinsurance ceded under reinsurance agreements with an inception,23
amendment, or renewal date on or after January 1, 1993, the trust shall consist of a24
trusteed account in an amount not less than the respective underwriters' several25
liabilities attributable to business ceded by United States domiciled ceding insurers26
to any underwriter of the group.27
(ii) For reinsurance ceded under reinsurance agreements with an inception28
date on or before December 31, 1992, and not amended or renewed after that date,29 HLS 12RS-809 ENGROSSED
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notwithstanding the other provisions of this Subpart, the trust shall consist of a1
trusteed account in an amount not less than the respective underwriters' several2
insurance and reinsurance liabilities attributable to business written in the United3
States.4
(iii) In addition to these trusts, the group shall maintain in trust a trusteed5
surplus of which one hundred million dollars shall be held jointly for the benefit of6
the United States domiciled ceding insurers of any member of the group for all years7
of account.8
(iv) The incorporated members of the group shall not engage in any business9
other than underwriting as a member of the group and shall be subject to the same10
level of regulation and solvency control by the group's domiciliary regulator as are11
the unincorporated members.12
(v) Within ninety days after its financial statements are due to be filed with13
the group's domiciliary regulator, the group shall provide to the commissioner an14
annual certification by the group's domiciliary regulator of the solvency of each15
underwriter member; or if a certification is unavailable, financial statements,16
prepared by independent public accountants, of each underwriter member of the17
group.18
(c) (d) In the case of a group of incorporated underwriters insurers under19
common administration, the group shall:20
(i) Submit to this state's the commissioner's authority to examine its books21
and records and bear the expense of the any examination.22
(ii) Maintain aggregate policyholders' surplus of ten billion dollars.23
(iii) Maintain a trust fund consisting of a trusteed account in an amount not24
less than the group's several liabilities attributable to business ceded by United States25
ceding insurers to any member of the group.26
(iv) In addition, maintain a joint trusteed surplus of which one hundred27
million dollars shall be held jointly for the benefit of the United States ceding28
insurers of any member of the group as additional security for these liabilities.29 HLS 12RS-809 ENGROSSED
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(v) Within ninety days after its financial statements are due to be filed with1
the group's domiciliary regulator make available to the commissioner an annual2
certification of the member's solvency by the member's domiciliary regulator and3
financial statements of each underwriter member of the group audited by4
independent public accountants.5
E. The commissioner shall allow credit for reinsurance when the assuming6
insurer is certified by the commissioner as a reinsurer in this state and secures its7
obligations in accordance with the requirements of this Subsection.8
(1) To be eligible for certification, the assuming insurer shall meet the9
following requirements:10
(a) The assuming insurer shall be domiciled and licensed to transact11
insurance or reinsurance in a qualified jurisdiction, as determined by the12
commissioner pursuant to Paragraph (3) of this Subsection.13
(b) The assuming insurer shall maintain minimum capital and surplus or its14
equivalent, in an amount to be determined by the commissioner, pursuant to15
regulation.16
(c) The assuming insurer shall maintain financial strength ratings from two17
or more rating agencies deemed acceptable by the commissioner pursuant to18
regulation.19
(d) The assuming insurer shall agree to submit to the jurisdiction of this20
state, appoint the commissioner as its agent for service of process in this state, and21
agree to provide security for one hundred percent of the assuming insurer's liabilities22
attributable to reinsurance ceded by United States ceding insurers if it resists23
enforcement of a final United States judgment.24
(e) The assuming insurer shall agree to meet applicable information filing25
requirements as determined by the commissioner for its initial application for26
certification and for its continual maintenance of certification as a reinsurer.27
(f) The assuming insurer shall satisfy any other requirements for certification28
deemed relevant by the commissioner.29 HLS 12RS-809 ENGROSSED
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(2) An association including incorporated and individual unincorporated1
underwriters may be a certified reinsurer. To be eligible for certification, in addition2
to satisfying requirements of Paragraph (1) of this Subsection:3
(a) The association shall satisfy its minimum capital and surplus4
requirements through the capital and surplus equivalents and net of liabilities of the5
association and its members, which shall include a joint central fund that may be6
applied to any unsatisfied obligation of the association or any of its members, in an7
amount determined by the commissioner to provide adequate protection.8
(b) The incorporated members of the association shall not engage in any9
business other than underwriting as a member of the association and shall be subject10
to the same level of regulation and solvency control to which the unincorporated11
members are subject, pursuant to the authority of the association's domiciliary12
regulator.13
(c) Within ninety days after its financial statements are due to be filed with14
the association's domiciliary regulator, the association shall provide to the15
commissioner an annual certification by the association's domiciliary regulator of the16
solvency of each underwriter member; or, if a certification is unavailable, the17
association shall provide financial statements, prepared by independent public18
accountants, of each underwriter member of the association.19
(3) The commissioner shall create and publish a list of qualified20
jurisdictions.21
(a) To determine the eligibility of the domiciliary jurisdiction of a non-22
United States assuming insurer for recognition as a qualified jurisdiction, the23
commissioner shall evaluate the appropriateness and effectiveness of the reinsurance24
supervisory system of the jurisdiction, both initially and continually thereafter, and25
consider the rights, benefits, and the extent of reciprocal recognition afforded by the26
non-United States jurisdiction to reinsurers licensed and domiciled in the United27
States. A qualified jurisdiction shall agree to share information and cooperate with28
the commissioner with respect to all certified reinsurers domiciled within that29 HLS 12RS-809 ENGROSSED
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jurisdiction. The commissioner may not recognize a jurisdiction as a qualified1
jurisdiction if the commissioner determines that it does not adequately and promptly2
enforce final United States judgments and arbitration awards. The commissioner may3
consider additional factors in determining qualified jurisdictions.4
(b) The commissioner shall consider the list of qualified jurisdictions5
published by the NAIC through the NAIC committee process in determining6
qualified jurisdictions. If the commissioner approves a jurisdiction as qualified that7
does not appear on the list of qualified jurisdictions, the commissioner shall provide8
thoroughly documented justification in accordance with criteria to be developed9
under regulations.10
(c) The commissioner shall recognize as qualified jurisdictions those United11
States jurisdictions that meet the requirements for accreditation under the NAIC12
financial standards and accreditation program.13
(d) If a certified reinsurer's domiciliary jurisdiction ceases to be a qualified14
jurisdiction, the commissioner has the discretion to suspend the reinsurer's15
certification indefinitely, in lieu of revocation.16
(4) The commissioner shall publish a list of all certified reinsurers and their17
ratings assigned by the commissioner giving due consideration to the financial18
strength ratings assigned by rating agencies acceptable to the commissioner pursuant19
to regulation.20
(5) A certified reinsurer shall secure obligations assumed from United States21
ceding insurers under this Subsection at a level consistent with its rating, as specified22
in regulations promulgated by the commissioner.23
(a) For a domestic ceding insurer to qualify for full financial statement credit24
for reinsurance ceded to a certified reinsurer, the certified reinsurer shall maintain25
security in a form acceptable to the commissioner and consistent with the provisions26
of R.S. 22:652, or in a multi-beneficiary trust in accordance with Subsection D of27
this Section, except as otherwise provided in this Subsection.28 HLS 12RS-809 ENGROSSED
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(b) If a certified reinsurer maintains a trust to fully secure its obligations1
subject to Subsection D of this Section, and chooses to secure its obligations incurred2
as a certified reinsurer in the form of a multi-beneficiary trust, the certified reinsurer3
shall maintain separate trust accounts for its obligations incurred under reinsurance4
agreements issued or renewed as a certified reinsurer with reduced security as5
permitted by this Subsection or comparable laws of other United States jurisdictions6
and for its obligations subject to Subsection D of this Section. It shall be a condition7
to the grant of certification pursuant to Subsection E of this Section that the certified8
reinsurer shall have bound itself, by the language of the trust and agreement with the9
commissioner with principal regulatory oversight of each such trust account, to fund,10
upon termination of any such trust account, out of the remaining surplus of such trust11
any deficiency of any other such trust account.12
(c) The minimum trusteed surplus requirements provided in Subsection D13
of this Section are not applicable with respect to a multi-beneficiary trust maintained14
by a certified reinsurer for the purpose of securing obligations incurred pursuant to15
this Subsection, except that such trust shall maintain a minimum trustee surplus of16
ten million dollars.17
(d) With respect to obligations incurred by a certified reinsurer pursuant to18
this Subsection, if the security is insufficient, the commissioner shall reduce the19
allowable credit by an amount proportionate to the deficiency, and has the discretion20
to impose further reductions in allowable credit upon finding that there is a material21
risk that the certified reinsurer's obligations will not be paid in full when due.22
(e) For purposes of this Subsection, a certified reinsurer whose certification23
has been terminated for any reason shall be treated as a certified reinsurer required24
to secure one hundred percent of its obligations.25
(i) As used in this Subsection, the term "terminated" refers to revocation,26
suspension, voluntary surrender, and inactive status.27 HLS 12RS-809 ENGROSSED
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(ii) If the commissioner continues to assign a higher rating as permitted by1
other provisions of this Section, this requirement does not apply to a certified2
reinsurer in inactive status or to a reinsurer whose certification has been suspended.3
(6) The commissioner may certify a reinsurer in this state based on the4
certification and assigned rating granted to that reinsurer by another NAIC accredited5
jurisdiction.6
(7) A certified reinsurer that ceases to assume new business in this state may7
request to maintain its certification in inactive status in order to continue to qualify8
for a reduction in security for its in-force business. An inactive certified reinsurer9
shall continue to comply with all applicable requirements of this Subsection, and the10
commissioner shall assign a rating that takes into account, if relevant, the reasons11
why the reinsurer is not assuming new business.12
E. F. Any credit for reinsurance shall also be allowed when the reinsurance13
is ceded to an assuming insurer not meeting the requirements of Subsection B, C, or14
D, or E of this Section, only as to the insurance of risks located in jurisdictions where15
the reinsurance is required by applicable law of that jurisdiction.16
F. G. If the assuming insurer is not authorized, or accredited, or certified to17
transact insurance or reinsurance in this state, the commissioner shall not allow the18
credit permitted by Subsection D shall not be allowed unless each of the following19
criteria are met:20
(1) The assuming insurer provides the following in all reinsurance21
agreements:22
(a) That in the event of the failure of the assuming insurer to perform its23
obligations under the terms of the reinsurance agreement, the assuming insurer, at24
the request of the ceding insurer, shall submit to the jurisdiction of any court of25
competent jurisdiction in any state of the United States, comply with all requirements26
necessary to give such court jurisdiction, and abide by the final decision of the27
district court or appellate court.28 HLS 12RS-809 ENGROSSED
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(b) To designate the commissioner as its true and lawful attorney, who may1
be served any lawful service of process in any action, suit, or proceeding instituted2
by or on behalf of the ceding insurer.3
(c) (2) The provisions of Subparagraphs (a) and (b) of this Paragraph (1) of4
this Subsection shall not be construed to conflict with or override the obligation of5
the parties to a reinsurance agreement to arbitrate their disputes, if such an obligation6
is created in the reinsurance agreement.7
(2) (3) The assuming insurer files with the department commissioner a list8
identifying its officers and directors, or similar principals, along with biographical9
information for each and provides an annual update of this information.10
(3) (4) The assuming insurer agrees to allow the department commissioner11
to examine its books and records and to waive any protection it has under any12
secrecy laws of its domiciliary jurisdiction of the reinsurer, except that any13
examination shall only take place upon showing of good cause by the department14
commissioner for concern about the financial soundness or solvency of the subject15
entity.16
G. H. The ceding insurer may take credit for the reserves on such ceded risks17
to the extent reinsured, except that:18
(1) No credit The ceding insurer shall not be taken take credit for such19
reserves unless the insurer accepting the reinsurance meets the requirements set forth20
in this Section as valid assuming insurers.21
(2) No credit The commissioner shall be not allow credit allowed to any22
ceding insurer for reinsurance, as an admitted asset or as a deduction from liability,23
unless the reinsurance shall be payable, in the event of insolvency of the ceding24
insurer, to its liquidator or receiver on the basis of the claim or claims allowed25
against the insolvent ceding insurer by any court of competent jurisdiction or any26
justice or judge thereof, or by any receiver or liquidator having authority to27
determine and allow such claims, except either where the reinsurance contract with28
the consent of the direct insured or insureds specifically provides another payee of29 HLS 12RS-809 ENGROSSED
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such reinsurance in the event of the insolvency of the ceding insurer, or when the1
assuming insurer with the consent of the direct insured or insureds has assumed such2
policy obligations of the ceding insurer as direct obligations of the assuming insurer3
to the payees under such policies and in substitution for the obligations of the ceding4
insurer to such payees.5
(3) No The commissioner shall not permit credit for reinsurance shall be6
permitted unless the assuming insurer has been doing business in its country of7
domicile for at least three years, or is an affiliate of an insurer or reinsurer which that8
has been doing business in its country of domicile for at least three years, unless the9
department commissioner, for good cause shown, waives this three-year operating10
requirement by rule or regulation.11
I. If the assuming insurer does not meet the requirements of Subsection B or12
C of this Section, the credit permitted by Subsection D or E of this Section shall not13
be allowed unless the assuming insurer agrees in the trust agreements to each of the14
following conditions:15
(1) Notwithstanding any other provisions in the trust instrument, if the trust16
fund is inadequate because it contains an amount less than the amount required by17
Paragraph (D)(3) of this Section, or if the grantor of the trust has been declared18
insolvent or placed into receivership, rehabilitation, liquidation, or similar19
proceedings under the laws of its state or country of domicile, the trustee shall20
comply with an order of the commissioner with regulatory oversight over the trust21
or with an order of a court of competent jurisdiction directing the trustee to transfer22
to the commissioner with regulatory oversight all of the assets of the trust fund.23
(2) The commissioner with regulatory oversight, according to the laws24
relative to the liquidation of domestic insurance companies of the state in which the25
trust is domiciled, shall distribute the assets and shall value claims. Claims shall also26
be directed to the commissioner with the regulatory oversight as provided in this27
Paragraph.28 HLS 12RS-809 ENGROSSED
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(3) If the commissioner with regulatory oversight determines that the assets1
of the trust fund or any part thereof are not necessary to satisfy the claims of the2
United States ceding insurers of the grantor of the trust, the assets or part thereof3
shall be returned by the commissioner with regulatory oversight to the trustee for4
distribution in accordance with the trust agreement.5
(4) The grantor shall waive any right otherwise available to it under United6
States law that is inconsistent with this provision.7
J. If an accredited or certified reinsurer ceases to meet the requirements for8
accreditation or certification, the commissioner may suspend or revoke the9
reinsurer's accreditation or certification.10
(1) The commissioner shall give the reinsurer notice and opportunity for a11
hearing. The suspension or revocation may not take effect until after the12
commissioner's order upon a hearing unless one of the following circumstances are13
present:14
(a) The reinsurer waives its right to a hearing.15
(b) The commissioner's order is based upon regulatory action by the16
reinsurer's domiciliary jurisdiction or upon the voluntary surrender or termination of17
the reinsurer's eligibility to transact insurance or reinsurance business in its18
domiciliary jurisdiction or in the primary certifying state of the reinsurer under19
Paragraph (E)(6) of this Section.20
(c) The commissioner finds that an emergency requires immediate action and21
a court of competent jurisdiction has not stayed the commissioner's action.22
(2) While a reinsurer's accreditation or certification is suspended, no23
reinsurance contract issued or renewed after the effective date of the suspension24
qualifies for credit except to the extent that the reinsurer's obligations under the25
contract are secured in accordance with R.S. 22:652. If a reinsurer's accreditation or26
certification is revoked, no credit for reinsurance may be granted after the effective27
date of the revocation, except to the extent that the reinsurer's obligations under the28 HLS 12RS-809 ENGROSSED
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contract are secured in accordance with the provisions of Paragraph (E)(5) of this1
Section or in accordance with R.S. 22:652.2
K.(1) A ceding insurer shall take steps to manage its reinsurance3
recoverables proportionate to its own book of business. A domestic ceding insurer4
shall notify the commissioner within thirty days after reinsurance recoverables from5
any single assuming insurer, or group of affiliated insurers, exceeds fifty percent of6
the domestic ceding insurer's last reported surplus to policyholders, or after it is7
determined that reinsurance recoverables from any single assuming insurer, or group8
of affiliated assuming insurers, is likely to exceed this limit. The notification shall9
demonstrate that the exposure is safely managed by the domestic ceding insurer.10
(2) A ceding insurer shall take steps to diversify its reinsurance program. A11
domestic ceding insurer shall notify the commissioner within thirty days after ceding12
to any single assuming insurer, or group of affiliated assuming insurers, more than13
twenty percent of the ceding insurer's gross written premium in the prior calendar14
year, or after it has determined that the reinsurance ceded to any single assuming15
insurer, or group of affiliated assuming insurers, is likely to exceed this limit. The16
notification shall demonstrate that the exposure is safely managed by the domestic17
ceding insurer. 18
§652. Reduction from liability for ceded reinsurance19
A reduction from liability for the reinsurance ceded by a domestic insurer to20
an assuming insurer that fails to satisfy the requirements of R.S. 22:651 shall be21
allowed in an amount not exceeding the liabilities carried by the ceding insurer, and22
such a reduction shall be in the amount of funds held by or on behalf of the ceding23
insurer, including funds held in trust in this state for the ceding insurer, under a24
reinsurance contract with such assuming insurer as security for the payment of25
obligations thereunder, if such security is held in this state subject to withdrawal26
solely by, and under the exclusive control of, the ceding insurer, or, in the case of a27
trust, held in a qualified United States financial institution, as defined in R.S. 28 HLS 12RS-809 ENGROSSED
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22:653(B). The security may be in the form of:1
* * *2
(2) Securities listed by the Securities Valuation Office of the National3
Association of Insurance Commissioners (NAIC) , including those deemed exempt4
from filing as defined by the Purposes and Procedures Manual of the Securities5
Valuation Office, and qualifying as admitted assets.6
(3)(a) Clean, irrevocable, unconditional letters of credit, issued or confirmed7
by a qualified United States institution, as defined in R.S. 22:653(A), effective no8
later than December thirty-first in respect of the year for which filing is being made,9
and in possession of or in trust for the ceding company insurer on or before the filing10
date of its annual statement.11
* * *12
DIGEST
The digest printed below was prepared by House Legislative Services. It constitutes no part
of the legislative instrument. The keyword, one-liner, abstract, and digest do not constitute
part of the law or proof or indicia of legislative intent. [R.S. 1:13(B) and 24:177(E)]
Talbot HB No. 849
Abstract: Provides relative to reinsurance credits.
Present law provides that credit for reinsurance be allowed a domestic ceding insurer as
either an asset or deduction from liability when the assuming insurer satisfies the
requirements of present law.
Proposed law authorizes the commissioner to allow a credit for reinsurance. The
commissioner shall allow the credit only if the assuming insurer satisfies the requirements
of proposed law.
Present law allows for reinsurance credits to domestic ceding insurers when the reinsurance
is ceded to an assuming insurer which is accredited as a reinsurer in this state. Present law
further provides that an accredited reinsurer is a reinsurer that has been approved by the
Dept. of Insurance after filing an application for accreditation and:
(1)Has filed evidence of its submission to the jurisdiction of this state.
(2)Has submitted to the authority of the Dept. of Insurance to examine its books and
records.
(3)Has demonstrated that it is licensed or authorized to transact insurance or reinsurance
in at least one state which has standards for reinsurance credits.
(4)Files a true copy of its annual statement with the Dept. of Insurance annually. HLS 12RS-809 ENGROSSED
HB NO. 849
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CODING: Words in struck through type are deletions from existing law; words underscored
are additions.
Proposed law retains present law, and further provides that credit may be allowed when the
reinsurance is ceded to an insurer who holds a surplus in excess of $20 million and who the
commissioner has not denied accreditation within 90 days after submission of its application.
Present law allows for reinsurance credits to domestic ceding insurers when the reinsurance
is ceded to an assuming insurer which maintains a trust fund in a qualified U.S. financial
institution, as provided by present law, for the payment of the valid claims of its U.S.
policyholders and ceding insurers.
Proposed law retains present law, and further requires the assuming insurer to submit to the
commissioner's examination of its books and records.
Present law further provides that credit will not be granted unless the form of the trust and
amendments to the trust have been approved by the Dept. of Insurance. The trust must vest
legal title to its assets in the trustees of the trust for its U.S. ceding insurers and shall be
subject to examination as determined by the department. Requires trustees to submit a
written report to the department no later than Feb. 28 of each year, detailing the balance of
the trust and the investments of the trust for the preceding calendar year. Provides that the
trust shall not expire prior to Dec. 31 of the succeeding year.
Proposed law deletes present law and instead provides that the commissioner shall only grant
credit if the form of the trust receives the approval of either the commissioner of the state
of domicile of the trust or the commissioner of another state who accepts principal
regulatory oversight of the trust.
Proposed law further requires the assuming insurer to file the form of the trust and any trust
amendments with the commissioner of every domiciliary state of the ceding insurer
beneficiaries of the trust.
Proposed law requires the trust instrument to include provision that contested claims shall
be valid and enforceable upon the final order of any U.S. court of competent jurisdiction.
Proposed law provides that the trust shall remain in effect for as long as the assuming insurer
has outstanding obligations due under the reinsurance agreements subject to the trust.
Proposed law retains the provision of present law that requires the trustee to make a written
report to the commissioner, detailing the trust's balance and investments, no later than the
last day of Feb. of each year.
Present law provides that, in the case of a single assuming insurer, the trust shall consist of
a trusteed account in an amount no less than the assuming insurer's liabilities attributable to
business written in the U.S., plus a trusteed surplus of at least $20 million.
Proposed law retains present law, except for cases in which the assuming insurer has
permanently discontinued underwriting new business secured by that trust for at least three
years. In such a case, the commissioner with regulatory oversight may, after a finding based
on the assessment of the risk, authorize a reduction in the amount of the trusteed surplus. The
assuming insurer would still be required to maintain a trusteed surplus in an amount
adequate for the protection of the U.S. ceding insurers, policyholders, and claimants. In any
case, the amount of the trusteed surplus shall never be less than an amount equal to 30% of
the assuming insurer's liabilities attributable to reinsurance ceded by U.S. ceding insurers.
Present law provides that, when there is a group of assuming insurers that include
unincorporated underwriters, the trust shall consist of a trusteed account representing the
group's liabilities that are attributable to business written in the U.S. Further requires the
group of assuming insurers to maintain a joint trusteed surplus of $100 million for the
benefit of the U.S. ceding insurers of any member of the group of assuming insurers. Present HLS 12RS-809 ENGROSSED
HB NO. 849
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are additions.
law further requires the group to make an annual certification of each member's solvency
available to the commissioner.
Proposed law makes the following requirements for a group of assuming insurers that
include incorporated and individual unincorporated underwriters:
(1)For reinsurance ceded under reinsurance agreements with an inception, amendment,
or renewal date on or after Jan. 1, 1994, the trust must contain a trusteed account in
an amount that is no less than the amount of the respective underwriters' several
liabilities that are attributable to business ceded by U.S. domiciled ceding insurers.
(2)For reinsurance ceded under reinsurance agreements with an inception, amendment,
or renewal date on or before Dec. 31, 1992, the trust shall contain a trusteed account
in an amount that is no less than the amount of the respective underwriters' several
insurance and reinsurance liabilities that are attributable to business written in the
U.S.
(3)Regardless of the date of inception of the reinsurance agreement, the group shall
maintain in trust a trusteed surplus of $100 million, which shall be held jointly for
the benefit of the U.S. domiciled ceding insurers.
Proposed law prohibits the incorporated members of the group from engaging in any
business other than its underwriting as a member of the group; proposed law further provides
that incorporated members shall be subject to the same level of regulation as the
unincorporated members.
Proposed law requires the group to provide an annual certification of each underwriter's
solvency to the commissioner within 90 days after the date its financial statements are to be
filed with the group's domiciliary regulator.
Present law provides that, in the case of a group of incorporated insurers under common
administration, the group shall:
(1)Submit to this state's authority to examine its books and records and shall bear the
expense of examination.
(2)Maintain an aggregate policyholders' surplus of $10 billion.
(3)Maintain a trust consisting of a trusteed account in an amount not less than the
group's several liabilities attributable to business ceded by U.S. ceding insurers to
any member of the group.
(4)In addition to the aforementioned trusteed account, maintain a joint trusteed surplus
account that jointly holds $100 million.
(5)Provide an annual certification of each underwriter's solvency to the commissioner
within 90 days after the date its financial statements are to be filed with the group's
domiciliary regulator.
Proposed law retains present law.
Proposed law provides that the commissioner shall allow credit for reinsurance when the
assuming insurer is certified by the commissioner as a reinsurer in this state and meets all
of the following requirements:
(1)The assuming insurer must be domiciled and licensed to transact insurance or
reinsurance in a qualified jurisdiction. HLS 12RS-809 ENGROSSED
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are additions.
(2)The assuming insurer must maintain minimum capital and surplus or its equivalent.
(3)The assuming insurer must maintain financial strength ratings from two or more
rating agencies deemed acceptable by the commissioner.
(4)The assuming insurer must agree to submit to the jurisdiction of this state and
appoint the commissioner as its agent for service of process in this state, as well as
provide security for 100% of its liabilities attributable to reinsurance ceded by U. S.
ceding insurers.
(5)The assuming insurer must agree to meet applicable information filing requirements
as determined by the commissioner.
(6)The assuming insurer must satisfy any other requirements deemed relevant by the
commissioner.
Proposed law provides that an association including incorporated and individual
unincorporated underwriters may be a certified reinsurer, provided the association meets the
requirements of proposed law.
Proposed law requires the commissioner to create and publish a list of qualified jurisdictions.
Proposed law requires the commissioner to publish a list of certified reinsurers, along with
the ratings he has assigned them. The ratings shall factor in the financial strength ratings
assigned by rating agencies.
Proposed law requires certified reinsurers to secure obligations assumed from U.S. ceding
insurers at a level that is consistent with the certified reinsurer's rating, as specified in the
commissioner's regulations.
Proposed law provides that the commissioner may certify a reinsurer in this state based upon
the certification and assigned rating granted to that reinsurer by another jurisdiction that is
accredited by the National Association of Insurance Commissioners (NAIC).
Proposed law provides that a certified reinsurer that ceases to assume new business may
request to maintain its certification in inactive status in order to continue to qualify for a
reduction in security for its in-force business.
Present law provides that credit for reinsurance shall be allowed when the reinsurance is
ceded to an assuming insurer that does not meet the requirements of present law but the
insurance risks are located in a jurisdiction where reinsurance is required by the applicable
law of that jurisdiction.
Present law provides if the assuming insurer is not authorized or accredited to transact
insurance or reinsurance in this state, credit permitted by present law shall not be allowed
unless certain criteria are met.
Present law further provides that the ceding insurer may take credit for the reserves on such
ceded risks to the extent reinsured, except for the exceptions provided in present law.
Proposed law retains present law.
Proposed law provides that an assuming insurer who does not meet the requirements of
proposed law shall not be allowed credit unless the following conditions are met:
(1)When the trust fund is inadequate because it contains an amount less than the amount
required by proposed law, or because the grantor of the trust has been declared
insolvent or similar proceedings, the trustee shall comply with an order of the HLS 12RS-809 ENGROSSED
HB NO. 849
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are additions.
commissioner with regulatory oversight over the trust or with an order of a court of
competent jurisdiction directing the trustee to transfer to the commissioner with
regulatory oversight all of the assets of the trust fund.
(2)The commissioner with regulatory oversight shall distribute the assets. The
commissioner shall value the claims. Claims shall also be directed to the
commissioner with regulatory oversight.
(3)If the commissioner with regulatory oversight determines that the assets of the trust
fund are not necessary to satisfy the claims of the U.S. ceding insurers of the grantor
of the trust, the assets or part thereof shall be returned to the trustee for distribution
in accordance with the trust agreement.
(4)Proposed law requires the grantor to waive any rights that are inconsistent with
proposed law.
Proposed law grants the commissioner the authority to suspend or revoke, after notice and
opportunity for a hearing, the accreditation or certification of a reinsurer that ceases to meet
the requirements of proposed law. Provides that, while a reinsurer's accreditation or
certification is suspended, or in the event that it is revoked, no reinsurance contract issued
or renewed after the effective date shall qualify, except to the extent that the reinsurer's
obligations under that contract are secured in accordance with present law.
Proposed law requires ceding insurers to take steps to manage its reinsurance recoverables.
Further requires domestic ceding insurers to notify the commissioner within 30 days after
reinsurance recoverables from any single assuming insurer, or group of affiliated insurers,
exceeds 50% of the domestic ceding insurer's last reported surplus to policyholders or after
it is determined that reinsurance recoverables from any single assuming insurer, or group of
affiliated insurers, is likely to exceed this limit.
Proposed law requires ceding insurers to take steps to diversify its reinsurance program.
Further requires domestic ceding insurers to notify the commissioner within 30 days after
ceding more than 20% of its gross written premium to any single assuming insurer or group
of affiliated insurers.
Present law allows for reductions of liability for the reinsurance ceded by domestic insurers
to assuming insurers when the assuming insurer fails to meet the requirements of proposed
law. The reduction shall be in the amount of funds held by or on behalf of the ceding insurer,
including funds held in trust in this state for the ceding insurer under a reinsurance contract
with the assuming insurer acting as security for the payment of the underlying obligations.
Present law further provides that such security may be in the form of cash, securities listed
by the Securities Valuation Office of the NAIC, or clean and irrevocable, unconditional
letters of credit that are issued or confirmed by a qualified U.S. institution.
Proposed law retains present law and adds that the securities that may be used in trust to
secure underlying obligations include those securities that are deemed exempt from filing
as defined by the Purposes and Procedures Manual of the Securities Valuation Office.
(Amends R.S. 22:651 and 652(2) and (3)(a))