82R23397 RWG-F
By: Smithee H.B. No. 3086
Substitute the following for H.B. No. 3086:
By: Smithee C.S.H.B. No. 3086
A BILL TO BE ENTITLED
AN ACT
relating to credit to certain ceding insurers for reinsurance ceded
to certain certified assuming insurers.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 492.102(a), Insurance Code, is amended
to read as follows:
(a) A ceding insurer may be allowed credit for reinsurance
ceded, as an asset or as a deduction from liability, only if the
reinsurance is ceded to an assuming insurer that:
(1) is authorized to engage in the business of
insurance or reinsurance in this state;
(2) is accredited as a reinsurer in this state, as
provided by Section 492.103; [or]
(3) subject to Subchapter D, maintains, in a qualified
United States financial institution that has been granted the
authority to operate with fiduciary powers, a trust fund to pay
valid claims of:
(A) the assuming insurer's United States
policyholders and ceding insurers; and
(B) the policyholders' and ceding insurers'
assigns and successors in interest; or
(4) is determined by the commissioner to meet the
requirements of Section 492.1035.
SECTION 2. Subchapter C, Chapter 492, Insurance Code, is
amended by adding Sections 492.1035, 492.1036, and 492.1037 to read
as follows:
Sec. 492.1035. CREDIT FOR CERTAIN CERTIFIED REINSURERS. (a)
An asset or deduction from liability shall be allowed for
reinsurance ceded to an assuming insurer that the commissioner
certifies as a reinsurer and that secures its obligations in
accordance with the requirements of this section.
(b) The commissioner may certify an assuming insurer that:
(1) is domiciled and licensed to transact insurance or
reinsurance in a qualified jurisdiction under Subsections (e)-(g);
(2) maintains minimum capital and a surplus in an
amount the commissioner determines acceptable;
(3) maintains a financial strength rating from two or
more rating agencies the commissioner determines are acceptable;
(4) submits to this state's jurisdiction;
(5) designates the commissioner as an agent for
service of process in any action, suit, or proceeding instituted in
this state;
(6) provides security for 100 percent of the assuming
insurer's liabilities for reinsurance ceded by United States ceding
insurers if the assuming reinsurer resists enforcement of a valid,
nonappealable United States judgment; and
(7) satisfies other requirements for certification
the commissioner determines relevant.
(c) A ceding insurer or certified reinsurer may apply to the
commissioner for a waiver from the requirement of Subsection
(b)(6). The commissioner may enter an order that grants a waiver
from these requirements if the commissioner determines the waiver
is appropriate in the interests of ensuring market stability.
(d) The commissioner may certify a group of insurers,
including incorporated and individual unincorporated underwriters,
as a certified reinsurer if, in addition to satisfying requirements
of Subsection (a):
(1) the group of insurers satisfies minimum capital
and surplus requirements in an amount determined by the
commissioner to provide adequate protection by placing the group
and its members' capital and surplus equivalents into a joint
central fund that may be applied to an unsatisfied obligation of the
group or its members;
(2) each incorporated member of the group of insurers
is not engaged as a member of the group in business other than
underwriting and is subject to the same level of regulation and
solvency control by the group's domiciliary regulator as the
unincorporated members; and
(3) the group of insurers provides to the
commissioner, not later than the 90th day after the date the group's
financial statements are due to be filed with the group's
domiciliary regulator, the annual certification of solvency of
each underwriter member by the group's domiciliary regulator, or if
a certification is unavailable, financial statements prepared by
independent public accountants of each underwriter member of the
group.
(e) The commissioner shall publish a list of qualified
jurisdictions with respect to which an assuming insurer licensed
and domiciled in the jurisdiction may be considered for
certification by the commissioner as a certified reinsurer.
(f) To determine whether a jurisdiction of an assuming
insurer located outside of the United States may be eligible to be a
qualified jurisdiction, the commissioner must:
(1) evaluate the appropriateness and effectiveness of
the reinsurance supervisory system of the jurisdiction, both
initially and on an ongoing basis; and
(2) consider whether that jurisdiction imposes credit
for reinsurance requirements on reinsurers licensed and domiciled
in the United States that are at least as favorable as those
provided by this section.
(g) A qualified jurisdiction must share information and
cooperate with the commissioner with respect to all certified
reinsurers doing business within the jurisdiction. Jurisdictions
within the United States that meet the requirement for
accreditation under the National Association of Insurance
Commissioners' financial standards and accreditation program shall
be recognized as qualified jurisdictions. A jurisdiction may not
be recognized as a qualified jurisdiction if the commissioner has
determined that the jurisdiction does not adequately and promptly
enforce final United States judgments and arbitration awards. The
commissioner may also:
(1) defer to a list of qualified jurisdictions
published by the National Association of Insurance Commissioners;
and
(2) suspend a reinsurer's certification indefinitely,
if a certified reinsurer's domiciliary jurisdiction ceases to be a
qualified jurisdiction.
(h) The commissioner shall develop a rating system and
assign a rating to each certified reinsurer. The commissioner
shall publish a list of each certified reinsurer and the certified
reinsurer's rating. In rating certified reinsurers, the
commissioner shall consider:
(1) the certified reinsurer's financial strength
ratings assigned by rating agencies recognized by the commissioner;
and
(2) the reinsurer's reputation for promptly paying
claims to United States ceding insurers, including cases in which
the reinsurer has resisted the enforcement of a final United States
judgment.
(i) The commissioner shall determine the security a
certified reinsurer must maintain on obligations assumed from
ceding insurers domiciled in this state at a level consistent with
its rating.
(j) A domestic ceding insurer may qualify for full financial
statement credit for reinsurance ceded to a certified reinsurer if
the certified reinsurer maintains security:
(1) in a form acceptable to the commissioner and
consistent with the insurance laws of this state; or
(2) in a trust in accordance with Subchapter D, except
as otherwise provided.
(k) If a certified reinsurer maintains a trust under
Subchapter D to secure its obligations, 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 section or
comparable laws of other United States jurisdictions and for its
obligations subject to Subchapter D.
(l) The minimum trust surplus requirements in Subchapter D
are not applicable to a multibeneficiary trust maintained by a
certified reinsurer for the purpose of securing obligations
incurred under this section.
(m) If a certified reinsurer insufficiently secures
obligations incurred under this section, the commissioner:
(1) shall reduce the allowable credit by an amount
proportionate to the deficiency; and
(2) may impose further reductions in allowable credit
if the commissioner determines that there is a material risk the
certified reinsurer will not pay its obligations in full when due.
(n) The commissioner shall require a certified reinsurer
whose certification has been terminated under this section to
secure 100 percent of its obligations. This subsection does not
apply to a certified reinsurer with inactive status or to a
reinsurer whose certification has been suspended, even if the
commissioner assigns a higher rating to that reinsurer.
(o) If a jurisdiction accredited by the National
Association of Insurance Commissioners certifies an applicant for
certification as a reinsurer, the commissioner:
(1) may defer to that jurisdiction's certification and
the rating assigned by that jurisdiction; and
(2) shall consider the assuming insurer a certified
reinsurer.
(p) A certified reinsurer that ceases to assume new business
in this state 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. An inactive certified reinsurer shall
continue to comply with all applicable requirements of this section
and the commissioner shall assign an applicable rating that
describes why the reinsurer is not assuming new business.
Sec. 492.1036. SUSPENSION OR REVOCATION OF ACCREDITATION OR
CERTIFICATION. The commissioner may suspend or revoke a
reinsurer's accreditation or certification if an accredited or
certified reinsurer ceases to meet the requirements for
accreditation or certification. The commissioner must give the
reinsurer notice and opportunity for hearing. The suspension or
revocation may not take effect until after the commissioner's order
on the hearing, unless:
(1) the reinsurer waives its right to a hearing;
(2) the suspension or revocation is based on a
regulatory action in the reinsurer's domiciliary jurisdiction or
United States port of entry, or on the voluntary surrender or
termination of the reinsurer's eligibility to transact insurance or
reinsurance business in its domiciliary jurisdiction or in its
United States port of entry; or
(3) the commissioner determines that an emergency
requires immediate action and a court of competent jurisdiction has
not stayed the commissioner's action.
Sec. 492.1037. CONTINUED CREDIT FOLLOWING CHANGE OR
WITHDRAWAL IN RATING, ACCREDITATION, OR CERTIFICATION.
Notwithstanding the change or withdrawal of a reinsurer's rating,
accreditation, or certification, on request by the ceding insurer,
the commissioner may, in the interest of ensuring market stability
and the solvency of the ceding insurer, authorize the ceding
insurer to continue to take credit for all or part of the
recoverable reinsurance that relates to the change or withdrawal
for a specified period following the change or withdrawal.
SECTION 3. Section 492.151, Insurance Code, is amended to
read as follows:
Sec. 492.151. APPLICABILITY OF SUBCHAPTER. This subchapter
applies to:
(1) a trust that is used to qualify for a reinsurance
credit under Section 492.102(a)(3) and as described by Sections
492.1035(j) and (k); and
(2) [to] the assuming insurer that maintains the trust
fund.
SECTION 4. Section 492.152, Insurance Code, is amended by
adding Subsection (c) to read as follows:
(c) The commissioner may, after assessing the risk and
determining that the new required surplus level is adequate for the
protection of United States ceding insurers, policyholders, and
claimants in light of reasonably foreseeable adverse loss
development, authorize a reduction in the required trusteed surplus
under Subsection (a)(2) if the assuming insurer has discontinued
underwriting new business secured by the trust for more than three
years. The risk assessment may involve an actuarial review,
including an independent analysis of reserves and cash flows, and
must consider all material risk factors, including, if applicable,
the lines of business involved, the stability of the incurred loss
estimates, and the effect of the surplus requirements on the
assuming insurer's liquidity or solvency. The minimum required
trusteed surplus may not be reduced to an amount less than 30
percent of the assuming insurer's liabilities attributable to
reinsurance ceded by United States ceding insurers.
SECTION 5. Section 492.155(b), Insurance Code, is amended
to read as follows:
(b) To enable the commissioner to determine the sufficiency
of the trust fund under Section 492.102(a)(3) and for purposes of
Sections 492.1035(j) and (k), the assuming insurer shall report to
the department not later than March 1 of each year information
substantially the same as the information required to be reported
by an authorized insurer on the National Association of Insurance
Commissioners' Annual Statement form.
SECTION 6. Section 492.156(a), Insurance Code, is amended
to read as follows:
(a) A ceding insurer may not be allowed credit under Section
492.102(a)(3) for reinsurance ceded to an assuming insurer that is
not authorized, [or] accredited, or certified to engage in the
business of insurance or reinsurance in this state unless the
assuming insurer agrees in the reinsurance contract:
(1) that, if the assuming insurer fails to perform the
assuming insurer's obligations under the reinsurance contract, the
assuming insurer, at the request of the ceding insurer, will:
(A) submit to the jurisdiction of a court in any
state of the United States;
(B) comply with all requirements necessary to
give the court jurisdiction; and
(C) abide by the final decision of that court or,
if the court's decision is appealed, of the appellate court; and
(2) to designate the commissioner or an attorney as an
agent for service of process in any action, suit, or proceeding
instituted by or on behalf of the ceding insurer.
SECTION 7. Section 493.102(a), Insurance Code, is amended
to read as follows:
(a) A ceding insurer may be allowed credit for reinsurance
ceded, as an asset or as a deduction from liability, only if the
reinsurance is ceded to an assuming insurer that:
(1) is authorized to engage in the business of
insurance or reinsurance in this state;
(2) is accredited as a reinsurer in this state, as
provided by Section 493.103; [or]
(3) subject to Subchapter D, maintains, in a qualified
United States financial institution that has been granted the
authority to operate with fiduciary powers, a trust fund to pay
valid claims of:
(A) the assuming insurer's United States
policyholders and ceding insurers; and
(B) the policyholders' and ceding insurers'
assigns and successors in interest; or
(4) the commissioner determines meets the
requirements of Section 493.1035.
SECTION 8. Subchapter C, Chapter 493, Insurance Code, is
amended by adding Sections 493.1035, 493.1036, and 493.1037 to read
as follows:
Sec. 493.1035. CREDIT FOR CERTAIN CERTIFIED REINSURERS.
(a) An asset or deduction from liability shall be allowed for
reinsurance ceded to an assuming insurer that the commissioner
certifies as a reinsurer and that secures its obligations in
accordance with the requirements of this section.
(b) The commissioner may certify an assuming insurer that:
(1) is domiciled and licensed to transact insurance or
reinsurance in a qualified jurisdiction under Subsections (e)-(g);
(2) maintains minimum capital and a surplus in an
amount the commissioner determines acceptable;
(3) maintains a financial strength rating from two or
more rating agencies the commissioner determines are acceptable;
(4) submits to this state's jurisdiction;
(5) designates the commissioner as an agent for
service of process in any action, suit, or proceeding instituted in
this state;
(6) provides security for 100 percent of the assuming
insurer's liabilities for reinsurance ceded by United States ceding
insurers if the assuming reinsurer resists enforcement of a valid,
nonappealable United States judgment; and
(7) satisfies other requirements for certification
the commissioner determines relevant.
(c) A ceding insurer or certified reinsurer may apply to the
commissioner for a waiver from the requirement of Subsection
(b)(6). The commissioner may enter an order that grants a waiver
from these requirements if the commissioner determines the waiver
is appropriate in the interests of ensuring market stability.
(d) The commissioner may certify a group of insurers,
including incorporated and individual unincorporated underwriters,
as a certified reinsurer if, in addition to satisfying requirements
of Subsection (a):
(1) the group of insurers satisfies minimum capital
and surplus requirements in an amount determined by the
commissioner to provide adequate protection by placing the group
and its members' capital and surplus equivalents into a joint
central fund that may be applied to an unsatisfied obligation of the
group or its members;
(2) each incorporated member of the group of insurers
is not engaged as a member of the group in business other than
underwriting and is subject to the same level of regulation and
solvency control by the group's domiciliary regulator as the
unincorporated members; and
(3) the group of insurers provides to the
commissioner, not later than the 90th day after the date the group's
financial statements are due to be filed with the group's
domiciliary regulator, the annual certification of solvency of
each underwriter member by the group's domiciliary regulator, or if
a certification is unavailable, financial statements prepared by
independent public accountants of each underwriter member of the
group.
(e) The commissioner shall publish a list of qualified
jurisdictions with respect to which an assuming insurer licensed
and domiciled in the jurisdiction may be considered for
certification by the commissioner as a certified reinsurer.
(f) To determine whether a jurisdiction of an assuming
insurer located outside of the United States may be eligible to be a
qualified jurisdiction, the commissioner must:
(1) evaluate the appropriateness and effectiveness of
the reinsurance supervisory system of the jurisdiction, both
initially and on an ongoing basis; and
(2) consider whether that jurisdiction imposes credit
for reinsurance requirements on reinsurers licensed and domiciled
in the United States that are at least as favorable as those
provided by this section.
(g) A qualified jurisdiction must share information and
cooperate with the commissioner with respect to all certified
reinsurers doing business within the jurisdiction. Jurisdictions
within the United States that meet the requirement for
accreditation under the National Association of Insurance
Commissioners' financial standards and accreditation program shall
be recognized as qualified jurisdictions. A jurisdiction may not
be recognized as a qualified jurisdiction if the commissioner has
determined that the jurisdiction does not adequately and promptly
enforce final United States judgments and arbitration awards. The
commissioner may also:
(1) defer to a list of qualified jurisdictions
published by the National Association of Insurance Commissioners;
and
(2) suspend a reinsurer's certification indefinitely,
if a certified reinsurer's domiciliary jurisdiction ceases to be a
qualified jurisdiction.
(h) The commissioner shall develop a rating system and
assign a rating to each certified reinsurer. The commissioner
shall publish a list of each certified reinsurer and the certified
reinsurer's rating. In rating certified reinsurers, the
commissioner shall consider:
(1) the certified reinsurer's financial strength
ratings assigned by rating agencies recognized by the commissioner;
and
(2) the reinsurer's reputation for promptly paying
claims to United States ceding insurers, including cases in which
the reinsurer has resisted the enforcement of a final United States
judgment.
(i) The commissioner shall determine the security a
certified reinsurer must maintain on obligations assumed from
ceding insurers domiciled in this state at a level consistent with
its rating.
(j) A domestic ceding insurer may qualify for full financial
statement credit for reinsurance ceded to a certified reinsurer if
the certified reinsurer maintains security:
(1) in a form acceptable to the commissioner and
consistent with the insurance laws of this state; or
(2) in a trust in accordance with Subchapter D, except
as otherwise provided.
(k) If a certified reinsurer maintains a trust under
Subchapter D to secure its obligations, 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 section or
comparable laws of other United States jurisdictions and for its
obligations subject to Subchapter D.
(l) The minimum trust surplus requirements in Subchapter D
are not applicable to a multibeneficiary trust maintained by a
certified reinsurer for the purpose of securing obligations
incurred under this section.
(m) If a certified reinsurer insufficiently secures
obligations incurred under this section, the commissioner:
(1) shall reduce the allowable credit by an amount
proportionate to the deficiency; and
(2) may impose further reductions in allowable credit
if the commissioner determines that there is a material risk the
certified reinsurer will not pay its obligations in full when due.
(n) The commissioner shall require a certified reinsurer
whose certification has been terminated under this section to
secure 100 percent of its obligations. This subsection does not
apply to a certified reinsurer with inactive status or to a
reinsurer whose certification has been suspended, even if the
commissioner assigns a higher rating to that reinsurer.
(o) If a jurisdiction accredited by the National
Association of Insurance Commissioners certifies an applicant for
certification as a reinsurer, the commissioner:
(1) may defer to that jurisdiction's certification and
the rating assigned by that jurisdiction; and
(2) shall consider the assuming insurer a certified
reinsurer.
(p) A certified reinsurer that ceases to assume new business
in this state 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. An inactive certified reinsurer shall
continue to comply with all applicable requirements of this section
and the commissioner shall assign an applicable rating that
describes why the reinsurer is not assuming new business.
Sec. 493.1036. SUSPENSION OR REVOCATION OF ACCREDITATION OR
CERTIFICATION. The commissioner may suspend or revoke a
reinsurer's accreditation or certification if an accredited or
certified reinsurer ceases to meet the requirements for
accreditation or certification. The commissioner must give the
reinsurer notice and opportunity for hearing. The suspension or
revocation may not take effect until after the commissioner's order
on the hearing, unless:
(1) the reinsurer waives its right to a hearing;
(2) the suspension or revocation is based on a
regulatory action in the reinsurer's domiciliary jurisdiction or
United States port of entry, or on the voluntary surrender or
termination of the reinsurer's eligibility to transact insurance or
reinsurance business in its domiciliary jurisdiction or in its
United States port of entry; or
(3) the commissioner determines that an emergency
requires immediate action and a court of competent jurisdiction has
not stayed the commissioner's action.
Sec. 493.1037. CONTINUED CREDIT FOLLOWING CHANGE OR
WITHDRAWAL IN RATING, ACCREDITATION, OR CERTIFICATION.
Notwithstanding the change or withdrawal of a reinsurer's rating,
accreditation, or certification, on request by the ceding insurer,
the commissioner may, in the interest of ensuring market stability
and the solvency of the ceding insurer, authorize the ceding
insurer to continue to take credit for all or part of the
recoverable reinsurance that relates to the change or withdrawal
for a specified period following the change or withdrawal.
SECTION 9. Section 493.151, Insurance Code, is amended to
read as follows:
Sec. 493.151. APPLICABILITY OF SUBCHAPTER. This subchapter
applies to:
(1) a trust that is used to qualify for a reinsurance
credit under Section 493.102(a)(3) and as described by Sections
493.1035(j) and (k); and
(2) [to] the assuming insurer that maintains the trust
fund.
SECTION 10. Section 493.152, Insurance Code, is amended by
adding Subsection (d) to read as follows:
(d) The commissioner may, after assessing the risk and
determining that the new required surplus level is adequate for the
protection of United States ceding insurers, policyholders, and
claimants in light of reasonably foreseeable adverse loss
development, authorize a reduction in the required trusteed surplus
under Subsection (a)(2) if the assuming insurer has discontinued
underwriting new business secured by the trust for more than three
years. The risk assessment may involve an actuarial review,
including an independent analysis of reserves and cash flows, and
must consider all material risk factors, including, if applicable,
the lines of business involved, the stability of the incurred loss
estimates, and the effect of the surplus requirements on the
assuming insurer's liquidity or solvency. The minimum required
trusteed surplus may not be reduced to an amount less than 30
percent of the assuming insurer's liabilities attributable to
reinsurance ceded by United States ceding insurers.
SECTION 11. Section 493.155(b), Insurance Code, is amended
to read as follows:
(b) To enable the commissioner to determine the sufficiency
of the trust fund under Section 493.102(a)(3) and for purposes of
Sections 493.1035(j) and (k), the assuming insurer shall report to
the department not later than March 1 of each year information
substantially the same as the information required to be reported
by an authorized insurer on the National Association of Insurance
Commissioners' Annual Statement form.
SECTION 12. Section 493.156(a), Insurance Code, is amended
to read as follows:
(a) A ceding insurer may not be allowed credit under Section
493.102(a)(3) for reinsurance ceded to an assuming insurer that is
not authorized, [or] accredited, or certified to engage in the
business of insurance or reinsurance in this state unless the
assuming insurer agrees in the reinsurance contract:
(1) that, if the assuming insurer fails to perform the
assuming insurer's obligations under the reinsurance contract, the
assuming insurer, at the request of the ceding insurer, will:
(A) submit to the jurisdiction of a court in any
state of the United States;
(B) comply with all requirements necessary to
give the court jurisdiction; and
(C) abide by the final decision of that court or,
if the court's decision is appealed, of the appellate court; and
(2) to designate the commissioner or an attorney as an
agent for service of process in any action, suit, or proceeding
instituted by or on behalf of the ceding insurer.
SECTION 13. This Act applies only to a reinsurance contract
that is entered into or renewed on or after January 1, 2012. A
reinsurance contract that is entered into or renewed before January
1, 2012, is governed by the law as it existed immediately before the
effective date of this Act, and that law is continued in effect for
that purpose.
SECTION 14. This Act takes effect September 1, 2011.