83R18390 PMO-F
By: Eiland H.B. No. 837
Substitute the following for H.B. No. 837:
By: Eiland C.S.H.B. No. 837
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 Sections 492.1033-492.1038, as applicable.
SECTION 2. Subchapter C, Chapter 492, Insurance Code, is
amended by adding Sections 492.1033, 492.1034, 492.1035, 492.1036,
492.1037, 492.1038, and 492.1039 to read as follows:
Sec. 492.1033. CREDIT ALLOWED FOR CERTAIN CERTIFIED
REINSURERS. (a) Credit shall be allowed when the reinsurance is
ceded to an assuming insurer that:
(1) is certified by the commissioner as a reinsurer in
this state; and
(2) secures its obligations in accordance with the
requirements of this section and Sections 492.1034-492.1038.
(b) To be eligible for certification, the assuming insurer
must:
(1) be domiciled and licensed to transact insurance or
reinsurance in a jurisdiction listed as qualified on the list
published by the commissioner under Section 492.1035;
(2) maintain minimum capital and surplus in an amount
required by the commissioner by rule;
(3) maintain a financial strength rating from not
fewer than two rating agencies determined to be acceptable in
accordance with rules adopted by the commissioner;
(4) agree to submit to the jurisdiction of any court of
competent jurisdiction in any state of the United States;
(5) appoint the commissioner as its agent for service
of process in this state;
(6) provide security for 100 percent of the assuming
insurer's liabilities for reinsurance ceded by United States ceding
insurers if the assuming insurer resists enforcement of a final
judgment of a court of the United States;
(7) meet application information filing requirements
as established by the commissioner by rule, for the initial
application for certification and on an ongoing basis; and
(8) satisfy any other requirements for certification
required by rule adopted by the commissioner.
Sec. 492.1034. CERTAIN ASSOCIATIONS MAY BE CERTIFIED
REINSURERS. (a) An association that includes incorporated and
individual unincorporated underwriters may be a certified
reinsurer under Section 492.1033. To be eligible for certification
the association must satisfy the requirements of Section 492.1033
and this section.
(b) The association must satisfy minimum capital and
surplus requirements through the capital and surplus equivalents,
net of liabilities, of the association and its members, that must
include a joint central fund, in an amount determined by the
commissioner to provide adequate protection, that may be applied to
any unsatisfied obligation of the association or any of its
members.
(c) The incorporated members of the association acting as
members of the association may not be engaged in any business other
than underwriting and are subject to the same level of regulation
and solvency control by the association's domiciliary regulator as
are the unincorporated members.
(d) Not later than the 90th day after the date the
association's financial statements are due to be filed with the
association's domiciliary regulator, the association shall provide
to the commissioner:
(1) an annual certification by the association's
domiciliary regulator of the solvency of each underwriter member;
or
(2) if a certification described by Subdivision (1) is
unavailable, financial statements, prepared by independent public
accountants, of each underwriter member of the association.
Sec. 492.1035. QUALIFIED JURISDICTIONS. (a) The
commissioner shall develop and publish a list of qualified
jurisdictions in which an assuming insurer may be licensed and
domiciled in order to be considered for certification by the
commissioner under Section 492.1033 as a certified reinsurer. In
developing the list, the commissioner shall consider the list of
qualified jurisdictions published through the National Association
of Insurance Commissioners committee process.
(b) In order to determine whether a jurisdiction of an
assuming insurer located outside of the United States is eligible
to be recognized as a qualified jurisdiction under Subsection (a),
the commissioner shall evaluate the appropriateness and
effectiveness of the reinsurance supervisory system of the
jurisdiction, both initially and on an ongoing basis, and consider
the rights, benefits, and extent of reciprocal recognition afforded
by the jurisdiction to reinsurers licensed and domiciled in the
United States.
(c) In order to be qualified a jurisdiction must agree to
share information and cooperate with the commissioner with respect
to all certified reinsurers doing business in the jurisdiction.
(d) 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. Additional factors may be
considered in the discretion of the commissioner.
(e) If the commissioner approves under this section a
jurisdiction as qualified that does not appear on the list of
qualified jurisdictions published through the National Association
of Insurance Commissioners committee process, the commissioner
shall provide documentation in accordance with rules adopted by the
commissioner. The rules must include a requirement for a
thoroughly documented justification of the approval.
(f) The commissioner shall include as a qualified
jurisdiction under this section a United States jurisdiction that
meets the requirement for accreditation under the National
Association of Insurance Commissioners financial standards and
accreditation program.
(g) If a certified reinsurer's domiciliary jurisdiction
ceases to be a qualified jurisdiction, the commissioner may suspend
the reinsurer's certification indefinitely, instead of revoking
the certification.
Sec. 492.1036. FINANCIAL REQUIREMENTS FOR CERTIFIED
REINSURER. (a) The commissioner shall assign a rating to each
certified reinsurer giving due consideration to the financial
strength ratings that have been assigned by rating agencies
determined to be acceptable in accordance with rules adopted by the
commissioner.
(b) The commissioner shall publish a list of the ratings
assigned under this section for all certified reinsurers.
(c) A certified reinsurer shall secure obligations under
this section that are assumed from ceding insurers domiciled in the
United States at a level consistent with the rating assigned by the
commissioner.
(d) For a domestic ceding insurer to qualify for full
financial statement credit for reinsurance ceded to a certified
reinsurer, the certified reinsurer must maintain security:
(1) in a form acceptable to the commissioner and
consistent with the insurance laws of this state; or
(2) in a multibeneficiary trust in accordance with
Subchapter D, except as otherwise provided.
(e) If a certified reinsurer maintains a trust under
Subchapter D to secure its obligations, and chooses to secure its
obligations incurred as a certified reinsurer with a
multibeneficiary trust, the certified reinsurer shall maintain
separate trust accounts for the obligations incurred under
reinsurance agreements the certified reinsurer issued or renewed
with reduced security as permitted by this section or comparable
laws of other United States jurisdictions and for its obligations
subject to Subchapter D. It is a condition to the grant of
certification under this section that the certified reinsurer has
bound itself, by the language of the trust agreement and agreement
with the commissioner with principal regulatory oversight of each
trust account, to fund, on termination of the trust account, out the
remaining surplus of the trust any deficiency of any other trust
account described by this subsection.
(f) The minimum trusteed surplus requirements provided in
Subchapter D do not apply to a multibeneficiary trust described by
this section, except that the trust shall maintain a minimum
trusteed surplus of $10,000,000.
(g) With respect to obligations incurred by a certified
reinsurer under this section, if the security is insufficient, the
commissioner:
(1) shall reduce the allowable credit by an amount
proportionate to the deficiency; and
(2) may impose further reductions in allowable credit
on finding that there is a material risk that the certified
reinsurer's obligations will not be paid in full when due.
(h) For purposes of this section, a reinsurer whose
certification has been revoked, suspended, or voluntarily
surrendered or whose certification status has become inactive for
any reason shall be treated as a reinsurer required to secure 100
percent of its obligations, except that if the commissioner
continues to assign to the reinsurer a higher rating as permitted by
this section, the security requirement does not apply to a
reinsurer whose certification has been suspended or whose
certification status has become inactive.
Sec. 492.1037. CERTIFICATION BY NATIONAL ASSOCIATION OF
INSURANCE COMMISSIONERS. If an applicant for certification has
been certified as a reinsurer in a National Association of
Insurance Commissioners accredited jurisdiction:
(1) the commissioner may defer to the accredited
jurisdiction's certification and the rating assigned by that
jurisdiction; and
(2) the applicant shall be considered to be a
certified reinsurer in this state.
Sec. 492.1038. SUSPENSION OR REVOCATION OF CERTIFICATION;
INACTIVE STATUS. (a) A certified reinsurer that ceases to assume
new business in this state may request to maintain its
certification in inactive status to continue to qualify for a
reduction in security for in-force business. An inactive certified
reinsurer shall continue to comply with all applicable requirements
of this section, and the commissioner shall assign a rating that
takes into account, if relevant, the reasons the reinsurer is not
assuming new business.
(b) If an accredited or certified reinsurer ceases to meet
the requirements for accreditation or certification, the
commissioner may, after notice and opportunity for hearing, suspend
or revoke the reinsurer's accreditation or certification. A
suspension or revocation may not take effect until after the date of
the commissioner's order on the hearing, unless:
(1) the reinsurer waives its right to hearing;
(2) the commissioner's order is based on regulatory
action by the reinsurer's domiciliary jurisdiction or the voluntary
surrender or termination of the reinsurer's eligibility to transact
insurance or reinsurance business in its domiciliary jurisdiction
or in the primary certifying state of the reinsurer under this
section; or
(3) the commissioner finds that an emergency requires
immediate action and a court of competent jurisdiction has not
stayed the commissioner's action.
(c) While a reinsurer's accreditation or certification is
suspended, a reinsurance contract issued or renewed after the
effective date of the suspension does not qualify for credit except
to the extent that the reinsurer's obligations under the contract
are secured in accordance with Subchapter D.
(d) If a reinsurer's accreditation or certification is
revoked, credit for reinsurance may not be granted after the
effective date of the revocation except to the extent that the
reinsurer's obligations under the contract are secured in
accordance with Section 492.1036 or Subchapter D.
Sec. 492.1039. CONCENTRATION RISK. (a) A ceding insurer
shall manage its reinsurance recoverable proportionate to its book
of business. A domestic ceding insurer shall notify the
commissioner not later than the 30th day after the date reinsurance
recoverable from any single assuming insurer, or group of
affiliated assuming insurers, exceeds or is likely to exceed 50
percent of the domestic ceding insurer's last reported surplus to
policyholders. The notification shall demonstrate that the
exposure is safely managed by the domestic ceding insurer.
(b) A ceding insurer shall diversify its reinsurance
program. A domestic ceding insurer shall notify the commissioner
not later than the 30th day after the date the insurer cedes to any
single assuming insurer, or group of affiliated assuming insurers,
an amount that exceeds or is likely to exceed 20 percent of the
ceding insurer's gross written premium in the prior calendar year.
The notification shall demonstrate that the exposure is safely
managed by the domestic ceding insurer.
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
492.1036(e) and (f); and
(2) [to] the assuming insurer that maintains the trust
fund.
SECTION 4. Section 492.152, Insurance Code, is amended by
amending Subsection (a) and adding Subsection (a-1) to read as
follows:
(a) If the assuming insurer is a single insurer, the trust
must:
(1) consist of a trusteed account representing the
assuming insurer's liabilities attributable to business written in
the United States; and
(2) include a trusteed surplus of at least $20
million, except after the assuming insurer has permanently
discontinued underwriting new business secured by the trust for not
less than three calendar years, the commissioner with principal
regulatory oversight of the trust may authorize a reduction in the
required trusteed surplus, but only after a finding, based on an
assessment of the risk, 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.
(a-1) The risk assessment described by Subsection (a)(2)
may involve an actuarial review, including an independent analysis
of reserves and cash flows, and must consider all material risk
factors, including when 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 492.1036(e) and (f), 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. Subchapter D, Chapter 492, Insurance Code, is
amended by adding Section 492.1561 to read as follows:
Sec. 492.1561. CERTAIN TRUSTEED ASSUMING REINSURERS;
REQUIREMENTS FOR TRUST AGREEMENTS. (a) In this section,
"commissioner" means the insurance commissioner or other chief
insurance regulatory official with principal regulatory oversight
over the trust.
(b) If the assuming insurer does not meet the requirements
of Section 492.102(a)(1) or (2), the credit permitted by Section
492.102(a)(3) or (4) may not be allowed unless the assuming insurer
agrees in the trust agreements that:
(1) notwithstanding any other provisions in the trust
agreement, the trustee shall comply with an order of the
commissioner or a court ordering the trustee to transfer to the
commissioner all assets of the trust fund if:
(A) the trust fund is inadequate because the
trust fund contains an amount that is less than the amount required
by this subchapter; or
(B) the grantor of the trust has been declared
insolvent or placed into receivership, rehabilitation, or
liquidation or a similar proceeding under the laws of the grantor's
domiciliary state or country;
(2) claims in a proceeding described by Subdivision
(1)(B) must be filed with the commissioner;
(3) the commissioner shall value the claims described
by Subdivision (2) and distribute the assets of the trust under the
laws of the trust's domiciliary state applicable to the liquidation
of a domestic insurance company;
(4) if the commissioner determines that all or part of
the trust assets are unnecessary to satisfy the claims of the
grantor's ceding insurers domiciled in the United States, the
commissioner shall return those unnecessary assets to the trustee
for distribution in accordance with the trust agreement; and
(5) the grantor waives any right available under
federal or state law that is inconsistent with this section.
SECTION 8. 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) is determined by the commissioner to meet the
requirements of Sections 493.1033-493.1038, as applicable.
SECTION 9. Subchapter C, Chapter 493, Insurance Code, is
amended by adding Sections 493.1033, 493.1034, 493.1035, 493.1036,
493.1037, 493.1038, and 493.1039 to read as follows:
Sec. 493.1033. CREDIT ALLOWED FOR CERTAIN CERTIFIED
REINSURERS. (a) Credit shall be allowed when the reinsurance is
ceded to an assuming insurer that:
(1) is certified by the commissioner as a reinsurer in
this state; and
(2) secures its obligations in accordance with the
requirements of this section and Sections 493.1034-493.1038.
(b) To be eligible for certification, the assuming insurer
must:
(1) be domiciled and licensed to transact insurance or
reinsurance in a jurisdiction listed as qualified on the list
published by the commissioner under Section 493.1035;
(2) maintain minimum capital and surplus in an amount
required by the commissioner by rule;
(3) maintain a financial strength rating from not
fewer than two rating agencies determined to be acceptable in
accordance with rules adopted by the commissioner;
(4) agree to submit to the jurisdiction of any court of
competent jurisdiction in any state of the United States;
(5) appoint the commissioner as its agent for service
of process in this state;
(6) provide security for 100 percent of the assuming
insurer's liabilities for reinsurance ceded by United States ceding
insurers if the assuming insurer resists enforcement of a final
judgment of a court of the United States;
(7) meet application information filing requirements
as established by the commissioner by rule, for the initial
application for certification and on an ongoing basis; and
(8) satisfy any other requirements for certification
required by rule adopted by the commissioner.
Sec. 493.1034. CERTAIN ASSOCIATIONS MAY BE CERTIFIED
REINSURERS. (a) An association that includes incorporated and
individual unincorporated underwriters may be a certified
reinsurer under Section 493.1033. To be eligible for certification
the association must satisfy the requirements of Section 493.1033
and this section.
(b) The association must satisfy minimum capital and
surplus requirements through the capital and surplus equivalents,
net of liabilities, of the association and its members, that must
include a joint central fund, in an amount determined by the
commissioner to provide adequate protection, that may be applied to
any unsatisfied obligation of the association or any of its
members.
(c) The incorporated members of the association acting as
members of the association may not be engaged in any business other
than underwriting and are subject to the same level of regulation
and solvency control by the association's domiciliary regulator as
are the unincorporated members.
(d) Not later than the 90th day after the date the
association's financial statements are due to be filed with the
association's domiciliary regulator, the association shall provide
to the commissioner:
(1) an annual certification by the association's
domiciliary regulator of the solvency of each underwriter member;
or
(2) if a certification described by Subdivision (1) is
unavailable, financial statements, prepared by independent public
accountants, of each underwriter member of the association.
Sec. 493.1035. QUALIFIED JURISDICTIONS. (a) The
commissioner shall develop and publish a list of qualified
jurisdictions in which an assuming insurer may be licensed and
domiciled in order to be considered for certification by the
commissioner under Section 493.1033 as a certified reinsurer. In
developing the list, the commissioner shall consider the list of
qualified jurisdictions published through the National Association
of Insurance Commissioners committee process.
(b) In order to determine whether a jurisdiction of an
assuming insurer located outside of the United States is eligible
to be recognized as a qualified jurisdiction under Subsection (a),
the commissioner shall evaluate the appropriateness and
effectiveness of the reinsurance supervisory system of the
jurisdiction, both initially and on an ongoing basis, and consider
the rights, benefits, and extent of reciprocal recognition afforded
by the jurisdiction to reinsurers licensed and domiciled in the
United States.
(c) In order to be qualified a jurisdiction must agree to
share information and cooperate with the commissioner with respect
to all certified reinsurers doing business in the jurisdiction.
(d) 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. Additional factors may be
considered in the discretion of the commissioner.
(e) If the commissioner approves under this section a
jurisdiction as qualified that does not appear on the list of
qualified jurisdictions published through the National Association
of Insurance Commissioners committee process, the commissioner
shall provide documentation in accordance with rules adopted by the
commissioner. The rules must include a requirement for a
thoroughly documented justification of the approval.
(f) The commissioner shall include as a qualified
jurisdiction under this section a United States jurisdiction that
meets the requirement for accreditation under the National
Association of Insurance Commissioners financial standards and
accreditation program.
(g) If a certified reinsurer's domiciliary jurisdiction
ceases to be a qualified jurisdiction, the commissioner may suspend
the reinsurer's certification indefinitely, instead of revoking
the certification.
Sec. 493.1036. FINANCIAL REQUIREMENTS FOR CERTIFIED
REINSURER. (a) The commissioner shall assign a rating to each
certified reinsurer giving due consideration to the financial
strength ratings that have been assigned by rating agencies
determined to be acceptable in accordance with rules adopted by the
commissioner.
(b) The commissioner shall publish a list of the ratings
assigned under this section for all certified reinsurers.
(c) A certified reinsurer shall secure obligations under
this section that are assumed from ceding insurers domiciled in the
United States at a level consistent with the rating assigned by the
commissioner.
(d) For a domestic ceding insurer to qualify for full
financial statement credit for reinsurance ceded to a certified
reinsurer, the certified reinsurer must maintain security:
(1) in a form acceptable to the commissioner and
consistent with the insurance laws of this state; or
(2) in a multibeneficiary trust in accordance with
Subchapter D, except as otherwise provided.
(e) If a certified reinsurer maintains a trust under
Subchapter D to secure its obligations, and chooses to secure its
obligations incurred as a certified reinsurer with a
multibeneficiary trust, the certified reinsurer shall maintain
separate trust accounts for the obligations incurred under
reinsurance agreements the certified reinsurer issued or renewed
with reduced security as permitted by this section or comparable
laws of other United States jurisdictions and for its obligations
subject to Subchapter D. It is a condition to the grant of
certification under this section that the certified reinsurer has
bound itself, by the language of the trust agreement and agreement
with the commissioner with principal regulatory oversight of each
trust account, to fund, on termination of the trust account, out the
remaining surplus of the trust any deficiency of any other trust
account described by this subsection.
(f) The minimum trusteed surplus requirements provided in
Subchapter D do not apply to a multibeneficiary trust described by
this section, except that the trust shall maintain a minimum
trusteed surplus of $10,000,000.
(g) With respect to obligations incurred by a certified
reinsurer under this section, if the security is insufficient, the
commissioner:
(1) shall reduce the allowable credit by an amount
proportionate to the deficiency; and
(2) may impose further reductions in allowable credit
on finding that there is a material risk that the certified
reinsurer's obligations will not be paid in full when due.
(h) For purposes of this section, a reinsurer whose
certification has been revoked, suspended, or voluntarily
surrendered or whose certification status has become inactive for
any reason shall be treated as a reinsurer required to secure 100
percent of its obligations, except that if the commissioner
continues to assign to the reinsurer a higher rating as permitted by
this section, the security requirement does not apply to a
reinsurer whose certification has been suspended or whose
certification status has become inactive.
Sec. 493.1037. CERTIFICATION BY NATIONAL ASSOCIATION OF
INSURANCE COMMISSIONERS. If an applicant for certification has
been certified as a reinsurer in a National Association of
Insurance Commissioners accredited jurisdiction:
(1) the commissioner may defer to the accredited
jurisdiction's certification and the rating assigned by that
jurisdiction; and
(2) the applicant shall be considered to be a
certified reinsurer in this state.
Sec. 493.1038. SUSPENSION OR REVOCATION OF CERTIFICATION;
INACTIVE STATUS. (a) A certified reinsurer that ceases to assume
new business in this state may request to maintain its
certification in inactive status to continue to qualify for a
reduction in security for in-force business. An inactive certified
reinsurer shall continue to comply with all applicable requirements
of this section, and the commissioner shall assign a rating that
takes into account, if relevant, the reasons the reinsurer is not
assuming new business.
(b) If an accredited or certified reinsurer ceases to meet
the requirements for accreditation or certification, the
commissioner may, after notice and opportunity for hearing, suspend
or revoke the reinsurer's accreditation or certification. A
suspension or revocation may not take effect until after the date of
the commissioner's order on the hearing, unless:
(1) the reinsurer waives its right to hearing;
(2) the commissioner's order is based on regulatory
action by the reinsurer's domiciliary jurisdiction or the voluntary
surrender or termination of the reinsurer's eligibility to transact
insurance or reinsurance business in its domiciliary jurisdiction
or in the primary certifying state of the reinsurer under this
section; or
(3) the commissioner finds that an emergency requires
immediate action and a court of competent jurisdiction has not
stayed the commissioner's action.
(c) While a reinsurer's accreditation or certification is
suspended, a reinsurance contract issued or renewed after the
effective date of the suspension does not qualify for credit except
to the extent that the reinsurer's obligations under the contract
are secured in accordance with Subchapter D.
(d) If a reinsurer's accreditation or certification is
revoked, credit for reinsurance may not be granted after the
effective date of the revocation except to the extent that the
reinsurer's obligations under the contract are secured in
accordance with Section 493.1036 or Subchapter D.
Sec. 493.1039. CONCENTRATION RISK. (a) A ceding insurer
shall manage its reinsurance recoverable proportionate to its book
of business. A domestic ceding insurer shall notify the
commissioner not later than the 30th day after the date reinsurance
recoverable from any single assuming insurer, or group of
affiliated assuming insurers, exceeds or is likely to exceed 50
percent of the domestic ceding insurer's last reported surplus to
policyholders. The notification shall demonstrate that the
exposure is safely managed by the domestic ceding insurer.
(b) A ceding insurer shall diversify its reinsurance
program. A domestic ceding insurer shall notify the commissioner
not later than the 30th day after the date the insurer cedes to any
single assuming insurer, or group of affiliated assuming insurers,
an amount that exceeds or is likely to exceed 20 percent of the
ceding insurer's gross written premium in the prior calendar year.
The notification shall demonstrate that the exposure is safely
managed by the domestic ceding insurer.
SECTION 10. 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
493.1036(e) and (f); and
(2) [to] the assuming insurer that maintains the trust
fund.
SECTION 11. Section 493.152, Insurance Code, is amended by
amending Subsection (a) and adding Subsection (a-1) to read as
follows:
(a) If the assuming insurer is a single insurer, the trust
must:
(1) consist of a trusteed account representing the
assuming insurer's liabilities attributable to business written in
the United States; and
(2) include a trusteed surplus of at least $20
million, except after the assuming insurer has permanently
discontinued underwriting new business secured by the trust for not
less than three calendar years, the commissioner with principal
regulatory oversight of the trust may authorize a reduction in the
required trusteed surplus, but only after a finding, based on an
assessment of the risk, 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.
(a-1) The risk assessment described by Subsection (a)(2)
may involve an actuarial review, including an independent analysis
of reserves and cash flows, and must consider all material risk
factors, including when 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 12. 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 493.1036(e) and (f), 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 13. 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 14. Subchapter D, Chapter 493, Insurance Code, is
amended by adding Section 493.1561 to read as follows:
Sec. 493.1561. CERTAIN TRUSTEED ASSUMING REINSURERS;
REQUIREMENTS FOR TRUST AGREEMENTS. (a) In this section,
"commissioner" means the insurance commissioner or other chief
insurance regulatory official with principal regulatory oversight
over the trust.
(b) If the assuming insurer does not meet the requirements
of Section 493.102(a)(1) or (2), the credit permitted by Section
493.102(a)(3) or (4) may not be allowed unless the assuming insurer
agrees in the trust agreements that:
(1) notwithstanding any other provisions in the trust
agreement, the trustee shall comply with an order of the
commissioner or a court ordering the trustee to transfer to the
commissioner all assets of the trust fund if:
(A) the trust fund is inadequate because the
trust fund contains an amount that is less than the amount required
by this subchapter; or
(B) the grantor of the trust has been declared
insolvent or placed into receivership, rehabilitation, or
liquidation or a similar proceeding under the laws of the grantor's
domiciliary state or country;
(2) claims in a proceeding described by Subdivision
(1)(B) must be filed with the commissioner;
(3) the commissioner shall value the claims described
by Subdivision (2) and distribute the assets of the trust under the
laws of the trust's domiciliary state applicable to the liquidation
of a domestic insurance company;
(4) if the commissioner determines that all or part of
the trust assets are unnecessary to satisfy the claims of the
grantor's ceding insurers domiciled in the United States, the
commissioner shall return those unnecessary assets to the trustee
for distribution in accordance with the trust agreement; and
(5) the grantor waives any right available under
federal or state law that is inconsistent with this section.
SECTION 15. This Act applies only to a reinsurance contract
that is entered into or renewed on or after January 1, 2014. A
reinsurance contract that is entered into or renewed before January
1, 2014, 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 16. This Act takes effect September 1, 2013.