87R4485 JES-F
By: Hancock S.B. No. 1777
A BILL TO BE ENTITLED
AN ACT
relating to credit for reinsurance governed by certain covered
agreements and ceded to certain assuming insurers.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. 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;
(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 certified as a reinsurer in this state under
Section 493.1033 and maintains adequate collateral as determined by
the commissioner; or
(5) is an eligible assuming insurer under Section
493.108.
SECTION 2. Subchapter C, Chapter 493, Insurance Code, is
amended by adding Section 493.108 to read as follows:
Sec. 493.108. CREDIT ALLOWED FOR CERTAIN ELIGIBLE ASSUMING
INSURERS. (a) Credit must be allowed when reinsurance is ceded to
an assuming insurer that meets the conditions as required by this
section.
(b) The assuming insurer must have its principal office or
be domiciled in and be licensed in a reciprocal jurisdiction
described by Subsection (c).
(c) In this section:
(1) "Reciprocal jurisdiction" means a jurisdiction
that is:
(A) a jurisdiction located outside of the United
States or, in the case of a covered agreement between the United
States and European Union, a member state of the European Union,
that is subject to an in-force covered agreement described by
Subdivision (2) with the United States, each within its legal
authority;
(B) a jurisdiction located in the United States
that meets the requirements for accreditation under the National
Association of Insurance Commissioners financial regulation
standards and accreditation program; or
(C) a qualified jurisdiction, as determined by
the commissioner under Section 493.1035, that is not otherwise
described in Paragraph (A) or (B) and meets certain additional
requirements, consistent with the in-force covered agreements as
specified by the commissioner by rule.
(2) "Covered agreement" means an agreement that:
(A) is entered into under the Dodd-Frank Wall
Street Reform and Consumer Protection Act (31 U.S.C. Sections
313-314);
(B) is in effect or in a period of provisional
application; and
(C) addresses the elimination, under specified
conditions, of collateral requirements as a condition for entering
into a reinsurance agreement with a ceding insurer domiciled in
this state or allowing the ceding insurer to recognize credit for
reinsurance.
(d) The assuming insurer must have and maintain, on an
ongoing basis, minimum capital and surplus, or its equivalent,
calculated according to the methodology of the assuming insurer's
domiciliary jurisdiction, in an amount required by the commissioner
by rule. If the assuming insurer is an association, including
incorporated and individual unincorporated underwriters, the
assuming insurer must have and maintain, on an ongoing basis:
(1) minimum capital and surplus equivalents, net of
liabilities, calculated according to the methodology of the
assuming insurer's domiciliary jurisdiction; and
(2) a central fund containing a balance in an amount
required by the commissioner by rule.
(e) The assuming insurer must have and maintain, on an
ongoing basis, a minimum solvency or capital ratio, as applicable,
required by the commissioner by rule. If the assuming insurer is an
association, including incorporated and individual unincorporated
underwriters, the association must have and maintain, on an ongoing
basis, a minimum solvency or capital ratio in the reciprocal
jurisdiction where the assuming insurer has its principal office or
is domiciled and is licensed.
(f) The assuming insurer must agree and provide adequate
assurance to the commissioner in a form as required by the
commissioner by rule, as follows:
(1) The assuming insurer must provide prompt written
notice and explanation to the commissioner if:
(A) the assuming insurer no longer meets the
minimum requirements under Subsection (d) or (e); or
(B) any regulatory action is taken against the
assuming insurer for serious noncompliance with applicable law.
(2) The assuming insurer must consent in writing to
the jurisdiction of this state's courts and to the appointment of
the commissioner as agent for service of process. The commissioner
may require that an assuming insurer also include the consent for
service of process in each reinsurance agreement to which the
assuming insurer is a party. Nothing in this section limits or in
any way alters the capacity of parties to a reinsurance agreement to
agree to alternative dispute resolution mechanisms except to the
extent the agreement is unenforceable under applicable insolvency
or delinquency laws.
(3) The assuming insurer must consent in writing to
pay all final judgments, wherever enforcement is sought, obtained
by a ceding insurer or its legal successor, that have been declared
enforceable in the jurisdiction where the judgment was obtained.
(4) Each reinsurance agreement must require the
assuming insurer to provide security in an amount equal to 100
percent of the assuming insurer's liabilities attributable to
reinsurance ceded under the reinsurance agreement if the assuming
insurer resists enforcement of:
(A) a final judgment that is enforceable under
the law of the jurisdiction in which the judgment was obtained; or
(B) a properly enforceable arbitration award,
whether obtained by the ceding insurer or its legal successor on
behalf of the ceding insurer's receivership estate.
(5) The assuming insurer must:
(A) confirm that the assuming insurer is not
presently participating in any solvent scheme of arrangement that
involves this state's ceding insurers; and
(B) if the assuming insurer enters into a solvent
scheme of arrangement, agree to notify the ceding insurer and the
commissioner that the assuming insurer entered into the scheme of
arrangement and provide security in an amount equal to 100 percent
of the assuming insurer's liabilities to the ceding insurer. The
security required by this paragraph must be in a form consistent
with the provisions of this subchapter and required by the
commissioner by rule.
(g) On request of the commissioner, the assuming insurer or
its legal successor, on behalf of the assuming insurer and any legal
predecessor of the assuming insurer, must provide to the
commissioner documentation required by the commissioner by rule.
(h) The assuming insurer must maintain a practice of prompt
payment of claims under reinsurance agreements in accordance with
criteria established by the commissioner by rule.
(i) The assuming insurer's supervisory authority must
annually confirm to the commissioner, as of the preceding December
31 or the annual date otherwise statutorily reported to the
assuming insurer's reciprocal jurisdiction, that the assuming
insurer complies with the requirements of Subsection (c)(1)(A) or
(B).
(j) Nothing in this section prohibits an assuming insurer
from voluntarily providing to the commissioner information related
to this section.
(k) The commissioner shall timely develop and publish a list
of reciprocal jurisdictions.
(l) The commissioner's list of reciprocal jurisdictions
published under Subsection (k) must include any reciprocal
jurisdiction described by Subsection (c)(1)(A) or (B). The
commissioner shall consider any other reciprocal jurisdiction on
the list of reciprocal jurisdictions published through the National
Association of Insurance Commissioners committee process. The
commissioner may, in accordance with criteria established by the
commissioner by rule, approve a jurisdiction that does not appear
on the list of reciprocal jurisdictions published through the
National Association of Insurance Commissioners committee process
to be placed on the list of reciprocal jurisdictions published
under Subsection (k).
(m) The commissioner may remove a jurisdiction from the list
of reciprocal jurisdictions published under Subsection (k) if, in
accordance with a process established by the commissioner by rule,
the commissioner finds that the jurisdiction ceases to meet the
requirements of a reciprocal jurisdiction under this section.
Notwithstanding the authority to remove a jurisdiction, the
commissioner may not remove from the list a reciprocal jurisdiction
described by Subsection (c)(1)(A) or (B). If the commissioner
removes a reciprocal jurisdiction from the list published under
Subsection (k), credit for reinsurance ceded to an assuming insurer
that has its principal office or is domiciled in the removed
jurisdiction must be allowed if otherwise allowed under this
subchapter.
(n) The commissioner shall timely develop and publish a list
of assuming insurers that satisfy the conditions imposed by this
section and to which cessions must be granted credit under
Subsection (a). The commissioner may add an assuming insurer to the
list developed and published under this subsection if a National
Association of Insurance Commissioners' accredited jurisdiction
has added the assuming insurer to the accredited jurisdiction's
list of eligible assuming insurers or if, on initial eligibility,
the assuming insurer submits to the commissioner the information
required by Subsection (f) and complies with any additional
requirements imposed by the commissioner by rule except to the
extent that the additional requirements conflict with the
applicable covered agreement.
(o) If the commissioner finds that an assuming insurer
ceases to meet one or more of the requirements under this section,
the commissioner may revoke or suspend the assuming insurer's
eligibility under this section in accordance with procedures
established by the commissioner by rule.
(p) If an assuming insurer's eligibility is suspended, no
reinsurance agreement issued, amended, or renewed after the
effective date of the suspension qualifies for credit during the
period of suspension except to the extent that the assuming
insurer's obligations under the agreement are secured in accordance
with Section 493.104.
(q) If an assuming insurer's eligibility is revoked, no
credit for reinsurance may be granted after the effective date of
the revocation with respect to any reinsurance agreements entered
into by the assuming insurer, including reinsurance agreements
entered into before the date of revocation except to the extent that
the assuming insurer's obligations under the contract are secured
in a form acceptable to the commissioner and consistent with the
provisions of Section 493.104.
(r) If a ceding insurer is subject to rehabilitation,
liquidation, or conservation, the ceding insurer or its
representative may seek and, if found appropriate by the court in
which the rehabilitation, liquidation, or conservation proceedings
are pending, obtain an order requiring the assuming insurer to post
security for all outstanding ceded liabilities.
(s) Nothing in this section limits or in any way alters the
capacity of parties to a reinsurance agreement to agree on
requirements for security or other terms in that reinsurance
agreement, except as expressly prohibited by law.
(t) This section does not alter or impair a ceding insurer's
right to take credit for reinsurance to the extent that credit is
not available under this section if the reinsurance otherwise
qualifies for credit under this subchapter.
(u) Nothing in this section authorizes an assuming insurer
to withdraw or reduce the security provided under any reinsurance
agreement except as permitted by the agreement.
(v) Nothing in this section limits or in any way alters the
capacity of parties to any reinsurance agreement to renegotiate the
agreement.
(w) This section applies only to:
(1) credit under a reinsurance agreement that is
delivered, issued for delivery, or renewed on or after January 1,
2022; and
(2) losses incurred and reserves reported on or after
the later of:
(A) the date on which the assuming insurer has
met all eligibility requirements under this section; and
(B) the effective date of the applicable
reinsurance agreement, amendment, or renewal.
SECTION 3. (a) The commissioner of insurance shall
prescribe and publish a list of reciprocal jurisdictions under
Section 493.108, Insurance Code, as added by this Act, not later
than January 1, 2022.
(b) The commissioner of insurance shall prescribe and
publish a list of eligible assuming insurers under Section 493.108,
Insurance Code, as added by this Act, not later than January 1,
2022.
(c) Section 493.108, Insurance Code, as added by this Act,
does not:
(1) change or impair a ceding insurer's right to take
credit for reinsurance even though the credit is not available
under Section 493.108, Insurance Code, as added by this Act, if the
reinsurance otherwise qualifies for credit under Subchapter C,
Chapter 493, Insurance Code;
(2) authorize an assuming insurer to withdraw or
reduce the security provided under a reinsurance agreement in
effect on the effective date of this Act except as permitted by the
agreement; or
(3) change or impair the capacity of parties to a
reinsurance agreement to renegotiate the agreement.
SECTION 4. This Act takes effect January 1, 2022.