Texas 2013 - 83rd Regular

Texas House Bill HB837 Compare Versions

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1	1	83R18390 PMO-F
2	2	By: Eiland H.B. No. 837
3	3	Substitute the following for H.B. No. 837:
4	4	By: Eiland C.S.H.B. No. 837
5	5
6	6
7	7	A BILL TO BE ENTITLED
8	8	AN ACT
9	9	relating to credit to certain ceding insurers for reinsurance ceded
10	10	to certain certified assuming insurers.
11	11	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
12	12	SECTION 1. Section 492.102(a), Insurance Code, is amended
13	13	to read as follows:
14	14	(a) A ceding insurer may be allowed credit for reinsurance
15	15	ceded, as an asset or as a deduction from liability, only if the
16	16	reinsurance is ceded to an assuming insurer that:
17	17	(1) is authorized to engage in the business of
18	18	insurance or reinsurance in this state;
19	19	(2) is accredited as a reinsurer in this state, as
20	20	provided by Section 492.103; [or]
21	21	(3) subject to Subchapter D, maintains, in a qualified
22	22	United States financial institution that has been granted the
23	23	authority to operate with fiduciary powers, a trust fund to pay
24	24	valid claims of:
25	25	(A) the assuming insurer's United States
26	26	policyholders and ceding insurers; and
27	27	(B) the policyholders' and ceding insurers'
28	28	assigns and successors in interest; or
29	29	(4) is determined by the commissioner to meet the
30	30	requirements of Sections 492.1033-492.1038, as applicable.
31	31	SECTION 2. Subchapter C, Chapter 492, Insurance Code, is
32	32	amended by adding Sections 492.1033, 492.1034, 492.1035, 492.1036,
33	33	492.1037, 492.1038, and 492.1039 to read as follows:
34	34	Sec. 492.1033. CREDIT ALLOWED FOR CERTAIN CERTIFIED
35	35	REINSURERS. (a) Credit shall be allowed when the reinsurance is
36	36	ceded to an assuming insurer that:
37	37	(1) is certified by the commissioner as a reinsurer in
38	38	this state; and
39	39	(2) secures its obligations in accordance with the
40	40	requirements of this section and Sections 492.1034-492.1038.
41	41	(b) To be eligible for certification, the assuming insurer
42	42	must:
43	43	(1) be domiciled and licensed to transact insurance or
44	44	reinsurance in a jurisdiction listed as qualified on the list
45	45	published by the commissioner under Section 492.1035;
46	46	(2) maintain minimum capital and surplus in an amount
47	47	required by the commissioner by rule;
48	48	(3) maintain a financial strength rating from not
49	49	fewer than two rating agencies determined to be acceptable in
50	50	accordance with rules adopted by the commissioner;
51	51	(4) agree to submit to the jurisdiction of any court of
52	52	competent jurisdiction in any state of the United States;
53	53	(5) appoint the commissioner as its agent for service
54	54	of process in this state;
55	55	(6) provide security for 100 percent of the assuming
56	56	insurer's liabilities for reinsurance ceded by United States ceding
57	57	insurers if the assuming insurer resists enforcement of a final
58	58	judgment of a court of the United States;
59	59	(7) meet application information filing requirements
60	60	as established by the commissioner by rule, for the initial
61	61	application for certification and on an ongoing basis; and
62	62	(8) satisfy any other requirements for certification
63	63	required by rule adopted by the commissioner.
64	64	Sec. 492.1034. CERTAIN ASSOCIATIONS MAY BE CERTIFIED
65	65	REINSURERS. (a) An association that includes incorporated and
66	66	individual unincorporated underwriters may be a certified
67	67	reinsurer under Section 492.1033. To be eligible for certification
68	68	the association must satisfy the requirements of Section 492.1033
69	69	and this section.
70	70	(b) The association must satisfy minimum capital and
71	71	surplus requirements through the capital and surplus equivalents,
72	72	net of liabilities, of the association and its members, that must
73	73	include a joint central fund, in an amount determined by the
74	74	commissioner to provide adequate protection, that may be applied to
75	75	any unsatisfied obligation of the association or any of its
76	76	members.
77	77	(c) The incorporated members of the association acting as
78	78	members of the association may not be engaged in any business other
79	79	than underwriting and are subject to the same level of regulation
80	80	and solvency control by the association's domiciliary regulator as
81	81	are the unincorporated members.
82	82	(d) Not later than the 90th day after the date the
83	83	association's financial statements are due to be filed with the
84	84	association's domiciliary regulator, the association shall provide
85	85	to the commissioner:
86	86	(1) an annual certification by the association's
87	87	domiciliary regulator of the solvency of each underwriter member;
88	88	or
89	89	(2) if a certification described by Subdivision (1) is
90	90	unavailable, financial statements, prepared by independent public
91	91	accountants, of each underwriter member of the association.
92	92	Sec. 492.1035. QUALIFIED JURISDICTIONS. (a) The
93	93	commissioner shall develop and publish a list of qualified
94	94	jurisdictions in which an assuming insurer may be licensed and
95	95	domiciled in order to be considered for certification by the
96	96	commissioner under Section 492.1033 as a certified reinsurer. In
97	97	developing the list, the commissioner shall consider the list of
98	98	qualified jurisdictions published through the National Association
99	99	of Insurance Commissioners committee process.
100	100	(b) In order to determine whether a jurisdiction of an
101	101	assuming insurer located outside of the United States is eligible
102	102	to be recognized as a qualified jurisdiction under Subsection (a),
103	103	the commissioner shall evaluate the appropriateness and
104	104	effectiveness of the reinsurance supervisory system of the
105	105	jurisdiction, both initially and on an ongoing basis, and consider
106	106	the rights, benefits, and extent of reciprocal recognition afforded
107	107	by the jurisdiction to reinsurers licensed and domiciled in the
108	108	United States.
109	109	(c) In order to be qualified a jurisdiction must agree to
110	110	share information and cooperate with the commissioner with respect
111	111	to all certified reinsurers doing business in the jurisdiction.
112	112	(d) A jurisdiction may not be recognized as a qualified
113	113	jurisdiction if the commissioner has determined that the
114	114	jurisdiction does not adequately and promptly enforce final United
115	115	States judgments and arbitration awards. Additional factors may be
116	116	considered in the discretion of the commissioner.
117	117	(e) If the commissioner approves under this section a
118	118	jurisdiction as qualified that does not appear on the list of
119	119	qualified jurisdictions published through the National Association
120	120	of Insurance Commissioners committee process, the commissioner
121	121	shall provide documentation in accordance with rules adopted by the
122	122	commissioner. The rules must include a requirement for a
123	123	thoroughly documented justification of the approval.
124	124	(f) The commissioner shall include as a qualified
125	125	jurisdiction under this section a United States jurisdiction that
126	126	meets the requirement for accreditation under the National
127	127	Association of Insurance Commissioners financial standards and
128	128	accreditation program.
129	129	(g) If a certified reinsurer's domiciliary jurisdiction
130	130	ceases to be a qualified jurisdiction, the commissioner may suspend
131	131	the reinsurer's certification indefinitely, instead of revoking
132	132	the certification.
133	133	Sec. 492.1036. FINANCIAL REQUIREMENTS FOR CERTIFIED
134	134	REINSURER. (a) The commissioner shall assign a rating to each
135	135	certified reinsurer giving due consideration to the financial
136	136	strength ratings that have been assigned by rating agencies
137	137	determined to be acceptable in accordance with rules adopted by the
138	138	commissioner.
139	139	(b) The commissioner shall publish a list of the ratings
140	140	assigned under this section for all certified reinsurers.
141	141	(c) A certified reinsurer shall secure obligations under
142	142	this section that are assumed from ceding insurers domiciled in the
143	143	United States at a level consistent with the rating assigned by the
144	144	commissioner.
145	145	(d) For a domestic ceding insurer to qualify for full
146	146	financial statement credit for reinsurance ceded to a certified
147	147	reinsurer, the certified reinsurer must maintain security:
148	148	(1) in a form acceptable to the commissioner and
149	149	consistent with the insurance laws of this state; or
150	150	(2) in a multibeneficiary trust in accordance with
151	151	Subchapter D, except as otherwise provided.
152	152	(e) If a certified reinsurer maintains a trust under
153	153	Subchapter D to secure its obligations, and chooses to secure its
154	154	obligations incurred as a certified reinsurer with a
155	155	multibeneficiary trust, the certified reinsurer shall maintain
156	156	separate trust accounts for the obligations incurred under
157	157	reinsurance agreements the certified reinsurer issued or renewed
158	158	with reduced security as permitted by this section or comparable
159	159	laws of other United States jurisdictions and for its obligations
160	160	subject to Subchapter D. It is a condition to the grant of
161	161	certification under this section that the certified reinsurer has
162	162	bound itself, by the language of the trust agreement and agreement
163	163	with the commissioner with principal regulatory oversight of each
164	164	trust account, to fund, on termination of the trust account, out the
165	165	remaining surplus of the trust any deficiency of any other trust
166	166	account described by this subsection.
167	167	(f) The minimum trusteed surplus requirements provided in
168	168	Subchapter D do not apply to a multibeneficiary trust described by
169	169	this section, except that the trust shall maintain a minimum
170	170	trusteed surplus of $10,000,000.
171	171	(g) With respect to obligations incurred by a certified
172	172	reinsurer under this section, if the security is insufficient, the
173	173	commissioner:
174	174	(1) shall reduce the allowable credit by an amount
175	175	proportionate to the deficiency; and
176	176	(2) may impose further reductions in allowable credit
177	177	on finding that there is a material risk that the certified
178	178	reinsurer's obligations will not be paid in full when due.
179	179	(h) For purposes of this section, a reinsurer whose
180	180	certification has been revoked, suspended, or voluntarily
181	181	surrendered or whose certification status has become inactive for
182	182	any reason shall be treated as a reinsurer required to secure 100
183	183	percent of its obligations, except that if the commissioner
184	184	continues to assign to the reinsurer a higher rating as permitted by
185	185	this section, the security requirement does not apply to a
186	186	reinsurer whose certification has been suspended or whose
187	187	certification status has become inactive.
188	188	Sec. 492.1037. CERTIFICATION BY NATIONAL ASSOCIATION OF
189	189	INSURANCE COMMISSIONERS. If an applicant for certification has
190	190	been certified as a reinsurer in a National Association of
191	191	Insurance Commissioners accredited jurisdiction:
192	192	(1) the commissioner may defer to the accredited
193	193	jurisdiction's certification and the rating assigned by that
194	194	jurisdiction; and
195	195	(2) the applicant shall be considered to be a
196	196	certified reinsurer in this state.
197	197	Sec. 492.1038. SUSPENSION OR REVOCATION OF CERTIFICATION;
198	198	INACTIVE STATUS. (a) A certified reinsurer that ceases to assume
199	199	new business in this state may request to maintain its
200	200	certification in inactive status to continue to qualify for a
201	201	reduction in security for in-force business. An inactive certified
202	202	reinsurer shall continue to comply with all applicable requirements
203	203	of this section, and the commissioner shall assign a rating that
204	204	takes into account, if relevant, the reasons the reinsurer is not
205	205	assuming new business.
206	206	(b) If an accredited or certified reinsurer ceases to meet
207	207	the requirements for accreditation or certification, the
208	208	commissioner may, after notice and opportunity for hearing, suspend
209	209	or revoke the reinsurer's accreditation or certification. A
210	210	suspension or revocation may not take effect until after the date of
211	211	the commissioner's order on the hearing, unless:
212	212	(1) the reinsurer waives its right to hearing;
213	213	(2) the commissioner's order is based on regulatory
214	214	action by the reinsurer's domiciliary jurisdiction or the voluntary
215	215	surrender or termination of the reinsurer's eligibility to transact
216	216	insurance or reinsurance business in its domiciliary jurisdiction
217	217	or in the primary certifying state of the reinsurer under this
218	218	section; or
219	219	(3) the commissioner finds that an emergency requires
220	220	immediate action and a court of competent jurisdiction has not
221	221	stayed the commissioner's action.
222	222	(c) While a reinsurer's accreditation or certification is
223	223	suspended, a reinsurance contract issued or renewed after the
224	224	effective date of the suspension does not qualify for credit except
225	225	to the extent that the reinsurer's obligations under the contract
226	226	are secured in accordance with Subchapter D.
227	227	(d) If a reinsurer's accreditation or certification is
228	228	revoked, credit for reinsurance may not be granted after the
229	229	effective date of the revocation except to the extent that the
230	230	reinsurer's obligations under the contract are secured in
231	231	accordance with Section 492.1036 or Subchapter D.
232	232	Sec. 492.1039. CONCENTRATION RISK. (a) A ceding insurer
233	233	shall manage its reinsurance recoverable proportionate to its book
234	234	of business. A domestic ceding insurer shall notify the
235	235	commissioner not later than the 30th day after the date reinsurance
236	236	recoverable from any single assuming insurer, or group of
237	237	affiliated assuming insurers, exceeds or is likely to exceed 50
238	238	percent of the domestic ceding insurer's last reported surplus to
239	239	policyholders. The notification shall demonstrate that the
240	240	exposure is safely managed by the domestic ceding insurer.
241	241	(b) A ceding insurer shall diversify its reinsurance
242	242	program. A domestic ceding insurer shall notify the commissioner
243	243	not later than the 30th day after the date the insurer cedes to any
244	244	single assuming insurer, or group of affiliated assuming insurers,
245	245	an amount that exceeds or is likely to exceed 20 percent of the
246	246	ceding insurer's gross written premium in the prior calendar year.
247	247	The notification shall demonstrate that the exposure is safely
248	248	managed by the domestic ceding insurer.
249	249	SECTION 3. Section 492.151, Insurance Code, is amended to
250	250	read as follows:
251	251	Sec. 492.151. APPLICABILITY OF SUBCHAPTER. This subchapter
252	252	applies to:
253	253	(1) a trust that is used to qualify for a reinsurance
254	254	credit under Section 492.102(a)(3) and as described by Sections
255	255	492.1036(e) and (f); and
256	256	(2) [to] the assuming insurer that maintains the trust
257	257	fund.
258	258	SECTION 4. Section 492.152, Insurance Code, is amended by
259	259	amending Subsection (a) and adding Subsection (a-1) to read as
260	260	follows:
261	261	(a) If the assuming insurer is a single insurer, the trust
262	262	must:
263	263	(1) consist of a trusteed account representing the
264	264	assuming insurer's liabilities attributable to business written in
265	265	the United States; and
266	266	(2) include a trusteed surplus of at least $20
267	267	million, except after the assuming insurer has permanently
268	268	discontinued underwriting new business secured by the trust for not
269	269	less than three calendar years, the commissioner with principal
270	270	regulatory oversight of the trust may authorize a reduction in the
271	271	required trusteed surplus, but only after a finding, based on an
272	272	assessment of the risk, that the new required surplus level is
273	273	adequate for the protection of United States ceding insurers,
274	274	policyholders, and claimants in light of reasonably foreseeable
275	275	adverse loss development.
276	276	(a-1) The risk assessment described by Subsection (a)(2)
277	277	may involve an actuarial review, including an independent analysis
278	278	of reserves and cash flows, and must consider all material risk
279	279	factors, including when applicable, the lines of business involved,
280	280	the stability of the incurred loss estimates, and the effect of the
281	281	surplus requirements on the assuming insurer's liquidity or
282	282	solvency. The minimum required trusteed surplus may not be reduced
283	283	to an amount less than 30 percent of the assuming insurer's
284	284	liabilities attributable to reinsurance ceded by United States
285	285	ceding insurers.
286	286	SECTION 5. Section 492.155(b), Insurance Code, is amended
287	287	to read as follows:
288	288	(b) To enable the commissioner to determine the sufficiency
289	289	of the trust fund under Section 492.102(a)(3) and for purposes of
290	290	Sections 492.1036(e) and (f), the assuming insurer shall report to
291	291	the department not later than March 1 of each year information
292	292	substantially the same as the information required to be reported
293	293	by an authorized insurer on the National Association of Insurance
294	294	Commissioners' Annual Statement form.
295	295	SECTION 6. Section 492.156(a), Insurance Code, is amended
296	296	to read as follows:
297	297	(a) A ceding insurer may not be allowed credit under Section
298	298	492.102(a)(3) for reinsurance ceded to an assuming insurer that is
299	299	not authorized, [or] accredited, or certified to engage in the
300	300	business of insurance or reinsurance in this state unless the
301	301	assuming insurer agrees in the reinsurance contract:
302	302	(1) that, if the assuming insurer fails to perform the
303	303	assuming insurer's obligations under the reinsurance contract, the
304	304	assuming insurer, at the request of the ceding insurer, will:
305	305	(A) submit to the jurisdiction of a court in any
306	306	state of the United States;
307	307	(B) comply with all requirements necessary to
308	308	give the court jurisdiction; and
309	309	(C) abide by the final decision of that court or,
310	310	if the court's decision is appealed, of the appellate court; and
311	311	(2) to designate the commissioner or an attorney as an
312	312	agent for service of process in any action, suit, or proceeding
313	313	instituted by or on behalf of the ceding insurer.
314	314	SECTION 7. Subchapter D, Chapter 492, Insurance Code, is
315	315	amended by adding Section 492.1561 to read as follows:
316	316	Sec. 492.1561. CERTAIN TRUSTEED ASSUMING REINSURERS;
317	317	REQUIREMENTS FOR TRUST AGREEMENTS. (a) In this section,
318	318	"commissioner" means the insurance commissioner or other chief
319	319	insurance regulatory official with principal regulatory oversight
320	320	over the trust.
321	321	(b) If the assuming insurer does not meet the requirements
322	322	of Section 492.102(a)(1) or (2), the credit permitted by Section
323	323	492.102(a)(3) or (4) may not be allowed unless the assuming insurer
324	324	agrees in the trust agreements that:
325	325	(1) notwithstanding any other provisions in the trust
326	326	agreement, the trustee shall comply with an order of the
327	327	commissioner or a court ordering the trustee to transfer to the
328	328	commissioner all assets of the trust fund if:
329	329	(A) the trust fund is inadequate because the
330	330	trust fund contains an amount that is less than the amount required
331	331	by this subchapter; or
332	332	(B) the grantor of the trust has been declared
333	333	insolvent or placed into receivership, rehabilitation, or
334	334	liquidation or a similar proceeding under the laws of the grantor's
335	335	domiciliary state or country;
336	336	(2) claims in a proceeding described by Subdivision
337	337	(1)(B) must be filed with the commissioner;
338	338	(3) the commissioner shall value the claims described
339	339	by Subdivision (2) and distribute the assets of the trust under the
340	340	laws of the trust's domiciliary state applicable to the liquidation
341	341	of a domestic insurance company;
342	342	(4) if the commissioner determines that all or part of
343	343	the trust assets are unnecessary to satisfy the claims of the
344	344	grantor's ceding insurers domiciled in the United States, the
345	345	commissioner shall return those unnecessary assets to the trustee
346	346	for distribution in accordance with the trust agreement; and
347	347	(5) the grantor waives any right available under
348	348	federal or state law that is inconsistent with this section.
349	349	SECTION 8. Section 493.102(a), Insurance Code, is amended
350	350	to read as follows:
351	351	(a) A ceding insurer may be allowed credit for reinsurance
352	352	ceded, as an asset or as a deduction from liability, only if the
353	353	reinsurance is ceded to an assuming insurer that:
354	354	(1) is authorized to engage in the business of
355	355	insurance or reinsurance in this state;
356	356	(2) is accredited as a reinsurer in this state, as
357	357	provided by Section 493.103; [or]
358	358	(3) subject to Subchapter D, maintains, in a qualified
359	359	United States financial institution that has been granted the
360	360	authority to operate with fiduciary powers, a trust fund to pay
361	361	valid claims of:
362	362	(A) the assuming insurer's United States
363	363	policyholders and ceding insurers; and
364	364	(B) the policyholders' and ceding insurers'
365	365	assigns and successors in interest; or
366	366	(4) is determined by the commissioner to meet the
367	367	requirements of Sections 493.1033-493.1038, as applicable.
368	368	SECTION 9. Subchapter C, Chapter 493, Insurance Code, is
369	369	amended by adding Sections 493.1033, 493.1034, 493.1035, 493.1036,
370	370	493.1037, 493.1038, and 493.1039 to read as follows:
371	371	Sec. 493.1033. CREDIT ALLOWED FOR CERTAIN CERTIFIED
372	372	REINSURERS. (a) Credit shall be allowed when the reinsurance is
373	373	ceded to an assuming insurer that:
374	374	(1) is certified by the commissioner as a reinsurer in
375	375	this state; and
376	376	(2) secures its obligations in accordance with the
377	377	requirements of this section and Sections 493.1034-493.1038.
378	378	(b) To be eligible for certification, the assuming insurer
379	379	must:
380	380	(1) be domiciled and licensed to transact insurance or
381	381	reinsurance in a jurisdiction listed as qualified on the list
382	382	published by the commissioner under Section 493.1035;
383	383	(2) maintain minimum capital and surplus in an amount
384	384	required by the commissioner by rule;
385	385	(3) maintain a financial strength rating from not
386	386	fewer than two rating agencies determined to be acceptable in
387	387	accordance with rules adopted by the commissioner;
388	388	(4) agree to submit to the jurisdiction of any court of
389	389	competent jurisdiction in any state of the United States;
390	390	(5) appoint the commissioner as its agent for service
391	391	of process in this state;
392	392	(6) provide security for 100 percent of the assuming
393	393	insurer's liabilities for reinsurance ceded by United States ceding
394	394	insurers if the assuming insurer resists enforcement of a final
395	395	judgment of a court of the United States;
396	396	(7) meet application information filing requirements
397	397	as established by the commissioner by rule, for the initial
398	398	application for certification and on an ongoing basis; and
399	399	(8) satisfy any other requirements for certification
400	400	required by rule adopted by the commissioner.
401	401	Sec. 493.1034. CERTAIN ASSOCIATIONS MAY BE CERTIFIED
402	402	REINSURERS. (a) An association that includes incorporated and
403	403	individual unincorporated underwriters may be a certified
404	404	reinsurer under Section 493.1033. To be eligible for certification
405	405	the association must satisfy the requirements of Section 493.1033
406	406	and this section.
407	407	(b) The association must satisfy minimum capital and
408	408	surplus requirements through the capital and surplus equivalents,
409	409	net of liabilities, of the association and its members, that must
410	410	include a joint central fund, in an amount determined by the
411	411	commissioner to provide adequate protection, that may be applied to
412	412	any unsatisfied obligation of the association or any of its
413	413	members.
414	414	(c) The incorporated members of the association acting as
415	415	members of the association may not be engaged in any business other
416	416	than underwriting and are subject to the same level of regulation
417	417	and solvency control by the association's domiciliary regulator as
418	418	are the unincorporated members.
419	419	(d) Not later than the 90th day after the date the
420	420	association's financial statements are due to be filed with the
421	421	association's domiciliary regulator, the association shall provide
422	422	to the commissioner:
423	423	(1) an annual certification by the association's
424	424	domiciliary regulator of the solvency of each underwriter member;
425	425	or
426	426	(2) if a certification described by Subdivision (1) is
427	427	unavailable, financial statements, prepared by independent public
428	428	accountants, of each underwriter member of the association.
429	429	Sec. 493.1035. QUALIFIED JURISDICTIONS. (a) The
430	430	commissioner shall develop and publish a list of qualified
431	431	jurisdictions in which an assuming insurer may be licensed and
432	432	domiciled in order to be considered for certification by the
433	433	commissioner under Section 493.1033 as a certified reinsurer. In
434	434	developing the list, the commissioner shall consider the list of
435	435	qualified jurisdictions published through the National Association
436	436	of Insurance Commissioners committee process.
437	437	(b) In order to determine whether a jurisdiction of an
438	438	assuming insurer located outside of the United States is eligible
439	439	to be recognized as a qualified jurisdiction under Subsection (a),
440	440	the commissioner shall evaluate the appropriateness and
441	441	effectiveness of the reinsurance supervisory system of the
442	442	jurisdiction, both initially and on an ongoing basis, and consider
443	443	the rights, benefits, and extent of reciprocal recognition afforded
444	444	by the jurisdiction to reinsurers licensed and domiciled in the
445	445	United States.
446	446	(c) In order to be qualified a jurisdiction must agree to
447	447	share information and cooperate with the commissioner with respect
448	448	to all certified reinsurers doing business in the jurisdiction.
449	449	(d) A jurisdiction may not be recognized as a qualified
450	450	jurisdiction if the commissioner has determined that the
451	451	jurisdiction does not adequately and promptly enforce final United
452	452	States judgments and arbitration awards. Additional factors may be
453	453	considered in the discretion of the commissioner.
454	454	(e) If the commissioner approves under this section a
455	455	jurisdiction as qualified that does not appear on the list of
456	456	qualified jurisdictions published through the National Association
457	457	of Insurance Commissioners committee process, the commissioner
458	458	shall provide documentation in accordance with rules adopted by the
459	459	commissioner. The rules must include a requirement for a
460	460	thoroughly documented justification of the approval.
461	461	(f) The commissioner shall include as a qualified
462	462	jurisdiction under this section a United States jurisdiction that
463	463	meets the requirement for accreditation under the National
464	464	Association of Insurance Commissioners financial standards and
465	465	accreditation program.
466	466	(g) If a certified reinsurer's domiciliary jurisdiction
467	467	ceases to be a qualified jurisdiction, the commissioner may suspend
468	468	the reinsurer's certification indefinitely, instead of revoking
469	469	the certification.
470	470	Sec. 493.1036. FINANCIAL REQUIREMENTS FOR CERTIFIED
471	471	REINSURER. (a) The commissioner shall assign a rating to each
472	472	certified reinsurer giving due consideration to the financial
473	473	strength ratings that have been assigned by rating agencies
474	474	determined to be acceptable in accordance with rules adopted by the
475	475	commissioner.
476	476	(b) The commissioner shall publish a list of the ratings
477	477	assigned under this section for all certified reinsurers.
478	478	(c) A certified reinsurer shall secure obligations under
479	479	this section that are assumed from ceding insurers domiciled in the
480	480	United States at a level consistent with the rating assigned by the
481	481	commissioner.
482	482	(d) For a domestic ceding insurer to qualify for full
483	483	financial statement credit for reinsurance ceded to a certified
484	484	reinsurer, the certified reinsurer must maintain security:
485	485	(1) in a form acceptable to the commissioner and
486	486	consistent with the insurance laws of this state; or
487	487	(2) in a multibeneficiary trust in accordance with
488	488	Subchapter D, except as otherwise provided.
489	489	(e) If a certified reinsurer maintains a trust under
490	490	Subchapter D to secure its obligations, and chooses to secure its
491	491	obligations incurred as a certified reinsurer with a
492	492	multibeneficiary trust, the certified reinsurer shall maintain
493	493	separate trust accounts for the obligations incurred under
494	494	reinsurance agreements the certified reinsurer issued or renewed
495	495	with reduced security as permitted by this section or comparable
496	496	laws of other United States jurisdictions and for its obligations
497	497	subject to Subchapter D. It is a condition to the grant of
498	498	certification under this section that the certified reinsurer has
499	499	bound itself, by the language of the trust agreement and agreement
500	500	with the commissioner with principal regulatory oversight of each
501	501	trust account, to fund, on termination of the trust account, out the
502	502	remaining surplus of the trust any deficiency of any other trust
503	503	account described by this subsection.
504	504	(f) The minimum trusteed surplus requirements provided in
505	505	Subchapter D do not apply to a multibeneficiary trust described by
506	506	this section, except that the trust shall maintain a minimum
507	507	trusteed surplus of $10,000,000.
508	508	(g) With respect to obligations incurred by a certified
509	509	reinsurer under this section, if the security is insufficient, the
510	510	commissioner:
511	511	(1) shall reduce the allowable credit by an amount
512	512	proportionate to the deficiency; and
513	513	(2) may impose further reductions in allowable credit
514	514	on finding that there is a material risk that the certified
515	515	reinsurer's obligations will not be paid in full when due.
516	516	(h) For purposes of this section, a reinsurer whose
517	517	certification has been revoked, suspended, or voluntarily
518	518	surrendered or whose certification status has become inactive for
519	519	any reason shall be treated as a reinsurer required to secure 100
520	520	percent of its obligations, except that if the commissioner
521	521	continues to assign to the reinsurer a higher rating as permitted by
522	522	this section, the security requirement does not apply to a
523	523	reinsurer whose certification has been suspended or whose
524	524	certification status has become inactive.
525	525	Sec. 493.1037. CERTIFICATION BY NATIONAL ASSOCIATION OF
526	526	INSURANCE COMMISSIONERS. If an applicant for certification has
527	527	been certified as a reinsurer in a National Association of
528	528	Insurance Commissioners accredited jurisdiction:
529	529	(1) the commissioner may defer to the accredited
530	530	jurisdiction's certification and the rating assigned by that
531	531	jurisdiction; and
532	532	(2) the applicant shall be considered to be a
533	533	certified reinsurer in this state.
534	534	Sec. 493.1038. SUSPENSION OR REVOCATION OF CERTIFICATION;
535	535	INACTIVE STATUS. (a) A certified reinsurer that ceases to assume
536	536	new business in this state may request to maintain its
537	537	certification in inactive status to continue to qualify for a
538	538	reduction in security for in-force business. An inactive certified
539	539	reinsurer shall continue to comply with all applicable requirements
540	540	of this section, and the commissioner shall assign a rating that
541	541	takes into account, if relevant, the reasons the reinsurer is not
542	542	assuming new business.
543	543	(b) If an accredited or certified reinsurer ceases to meet
544	544	the requirements for accreditation or certification, the
545	545	commissioner may, after notice and opportunity for hearing, suspend
546	546	or revoke the reinsurer's accreditation or certification. A
547	547	suspension or revocation may not take effect until after the date of
548	548	the commissioner's order on the hearing, unless:
549	549	(1) the reinsurer waives its right to hearing;
550	550	(2) the commissioner's order is based on regulatory
551	551	action by the reinsurer's domiciliary jurisdiction or the voluntary
552	552	surrender or termination of the reinsurer's eligibility to transact
553	553	insurance or reinsurance business in its domiciliary jurisdiction
554	554	or in the primary certifying state of the reinsurer under this
555	555	section; or
556	556	(3) the commissioner finds that an emergency requires
557	557	immediate action and a court of competent jurisdiction has not
558	558	stayed the commissioner's action.
559	559	(c) While a reinsurer's accreditation or certification is
560	560	suspended, a reinsurance contract issued or renewed after the
561	561	effective date of the suspension does not qualify for credit except
562	562	to the extent that the reinsurer's obligations under the contract
563	563	are secured in accordance with Subchapter D.
564	564	(d) If a reinsurer's accreditation or certification is
565	565	revoked, credit for reinsurance may not be granted after the
566	566	effective date of the revocation except to the extent that the
567	567	reinsurer's obligations under the contract are secured in
568	568	accordance with Section 493.1036 or Subchapter D.
569	569	Sec. 493.1039. CONCENTRATION RISK. (a) A ceding insurer
570	570	shall manage its reinsurance recoverable proportionate to its book
571	571	of business. A domestic ceding insurer shall notify the
572	572	commissioner not later than the 30th day after the date reinsurance
573	573	recoverable from any single assuming insurer, or group of
574	574	affiliated assuming insurers, exceeds or is likely to exceed 50
575	575	percent of the domestic ceding insurer's last reported surplus to
576	576	policyholders. The notification shall demonstrate that the
577	577	exposure is safely managed by the domestic ceding insurer.
578	578	(b) A ceding insurer shall diversify its reinsurance
579	579	program. A domestic ceding insurer shall notify the commissioner
580	580	not later than the 30th day after the date the insurer cedes to any
581	581	single assuming insurer, or group of affiliated assuming insurers,
582	582	an amount that exceeds or is likely to exceed 20 percent of the
583	583	ceding insurer's gross written premium in the prior calendar year.
584	584	The notification shall demonstrate that the exposure is safely
585	585	managed by the domestic ceding insurer.
586	586	SECTION 10. Section 493.151, Insurance Code, is amended to
587	587	read as follows:
588	588	Sec. 493.151. APPLICABILITY OF SUBCHAPTER. This subchapter
589	589	applies to:
590	590	(1) a trust that is used to qualify for a reinsurance
591	591	credit under Section 493.102(a)(3) and as described by Sections
592	592	493.1036(e) and (f); and
593	593	(2) [to] the assuming insurer that maintains the trust
594	594	fund.
595	595	SECTION 11. Section 493.152, Insurance Code, is amended by
596	596	amending Subsection (a) and adding Subsection (a-1) to read as
597	597	follows:
598	598	(a) If the assuming insurer is a single insurer, the trust
599	599	must:
600	600	(1) consist of a trusteed account representing the
601	601	assuming insurer's liabilities attributable to business written in
602	602	the United States; and
603	603	(2) include a trusteed surplus of at least $20
604	604	million, except after the assuming insurer has permanently
605	605	discontinued underwriting new business secured by the trust for not
606	606	less than three calendar years, the commissioner with principal
607	607	regulatory oversight of the trust may authorize a reduction in the
608	608	required trusteed surplus, but only after a finding, based on an
609	609	assessment of the risk, that the new required surplus level is
610	610	adequate for the protection of United States ceding insurers,
611	611	policyholders, and claimants in light of reasonably foreseeable
612	612	adverse loss development.
613	613	(a-1) The risk assessment described by Subsection (a)(2)
614	614	may involve an actuarial review, including an independent analysis
615	615	of reserves and cash flows, and must consider all material risk
616	616	factors, including when applicable, the lines of business involved,
617	617	the stability of the incurred loss estimates, and the effect of the
618	618	surplus requirements on the assuming insurer's liquidity or
619	619	solvency. The minimum required trusteed surplus may not be reduced
620	620	to an amount less than 30 percent of the assuming insurer's
621	621	liabilities attributable to reinsurance ceded by United States
622	622	ceding insurers.
623	623	SECTION 12. Section 493.155(b), Insurance Code, is amended
624	624	to read as follows:
625	625	(b) To enable the commissioner to determine the sufficiency
626	626	of the trust fund under Section 493.102(a)(3) and for purposes of
627	627	Sections 493.1036(e) and (f), the assuming insurer shall report to
628	628	the department not later than March 1 of each year information
629	629	substantially the same as the information required to be reported
630	630	by an authorized insurer on the National Association of Insurance
631	631	Commissioners' Annual Statement form.
632	632	SECTION 13. Section 493.156(a), Insurance Code, is amended
633	633	to read as follows:
634	634	(a) A ceding insurer may not be allowed credit under Section
635	635	493.102(a)(3) for reinsurance ceded to an assuming insurer that is
636	636	not authorized, [or] accredited, or certified to engage in the
637	637	business of insurance or reinsurance in this state unless the
638	638	assuming insurer agrees in the reinsurance contract:
639	639	(1) that, if the assuming insurer fails to perform the
640	640	assuming insurer's obligations under the reinsurance contract, the
641	641	assuming insurer, at the request of the ceding insurer, will:
642	642	(A) submit to the jurisdiction of a court in any
643	643	state of the United States;
644	644	(B) comply with all requirements necessary to
645	645	give the court jurisdiction; and
646	646	(C) abide by the final decision of that court or,
647	647	if the court's decision is appealed, of the appellate court; and
648	648	(2) to designate the commissioner or an attorney as an
649	649	agent for service of process in any action, suit, or proceeding
650	650	instituted by or on behalf of the ceding insurer.
651	651	SECTION 14. Subchapter D, Chapter 493, Insurance Code, is
652	652	amended by adding Section 493.1561 to read as follows:
653	653	Sec. 493.1561. CERTAIN TRUSTEED ASSUMING REINSURERS;
654	654	REQUIREMENTS FOR TRUST AGREEMENTS. (a) In this section,
655	655	"commissioner" means the insurance commissioner or other chief
656	656	insurance regulatory official with principal regulatory oversight
657	657	over the trust.
658	658	(b) If the assuming insurer does not meet the requirements
659	659	of Section 493.102(a)(1) or (2), the credit permitted by Section
660	660	493.102(a)(3) or (4) may not be allowed unless the assuming insurer
661	661	agrees in the trust agreements that:
662	662	(1) notwithstanding any other provisions in the trust
663	663	agreement, the trustee shall comply with an order of the
664	664	commissioner or a court ordering the trustee to transfer to the
665	665	commissioner all assets of the trust fund if:
666	666	(A) the trust fund is inadequate because the
667	667	trust fund contains an amount that is less than the amount required
668	668	by this subchapter; or
669	669	(B) the grantor of the trust has been declared
670	670	insolvent or placed into receivership, rehabilitation, or
671	671	liquidation or a similar proceeding under the laws of the grantor's
672	672	domiciliary state or country;
673	673	(2) claims in a proceeding described by Subdivision
674	674	(1)(B) must be filed with the commissioner;
675	675	(3) the commissioner shall value the claims described
676	676	by Subdivision (2) and distribute the assets of the trust under the
677	677	laws of the trust's domiciliary state applicable to the liquidation
678	678	of a domestic insurance company;
679	679	(4) if the commissioner determines that all or part of
680	680	the trust assets are unnecessary to satisfy the claims of the
681	681	grantor's ceding insurers domiciled in the United States, the
682	682	commissioner shall return those unnecessary assets to the trustee
683	683	for distribution in accordance with the trust agreement; and
684	684	(5) the grantor waives any right available under
685	685	federal or state law that is inconsistent with this section.
686	686	SECTION 15. This Act applies only to a reinsurance contract
687	687	that is entered into or renewed on or after January 1, 2014. A
688	688	reinsurance contract that is entered into or renewed before January
689	689	1, 2014, is governed by the law as it existed immediately before the
690	690	effective date of this Act, and that law is continued in effect for
691	691	that purpose.
692	692	SECTION 16. This Act takes effect September 1, 2013.