The NAIC recently held a hearing on the implementation of the reduced reinsurance collateral provisions of the Covered Agreement. A Special Focus article describes the hearing.
This post written by Rollie Goss.
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Reinsurance Transactions
WYOMING ENACTS LEGISLATION AND ADOPTS NEW REGULATIONS GOVERNING CREDIT FOR REINSURANCE AND TERM AND UNIVERSAL LIFE INSURANCE RESERVE FINANCING
New regulations relating to credit for reinsurance and term and universal life insurance reserve financing took effect in Wyoming on November 30, 2017. The regulations implement amendments to Wyoming statutes that took effect last July, which were summarized by the Wyoming Legislative Service Office.
The statutory amendments revised requirements for insurers assuming liabilities of Wyoming domestic insurers in order for those domestic insurers to count the reinsurance as an asset. They also authorized the Insurance Commissioner to reduce an assuming insurer’s reserve requirements subject to certain conditions and granted her discretion to allow domestic insurers to take credit for reinsurance without posting 100% collateral. The Wyoming Department of Insurance revised Chapter 50 of the Department’s regulations to account not only for these statutory changes, but also to make the remainder of Chapter 50 consistent with the current NAIC model regulation.
In addition, the Department promulgated an entirely new chapter, Chapter 69, relating to term and universal life insurance reserve financing, so as to fully implement the statutory changes rendered last summer. The new Chapter 69 is also based on the associated NAIC model regulation. These changes ensure that the Wyoming Department of Insurance maintains its financial accreditation with the NAIC. Wyoming credit for reinsurance reg effective 1.5.1
This post written by Benjamin E. Stearns.
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CALIFORNIA DOI AMENDS REGULATION OF REINSURANCE
The California Department of Insurance (DOI) has adopted a set of amendments, effective January 1, 2018, to its regulations regarding reinsurance accounting, agreements and oversight. These changes were made to conform the regulations with the requirements of the federal Nonadmitted and Reinsurance Reform Act (NRRA), changes to the California Insurance Code, NAIC Model #787, and the practices of the DOI.
The amendments include several changes that clarify which regulations apply only to California domestic insurers versus which apply to both domestic and foreign (i.e., domiciled outside of California) insurers. This is a response to the preemption by the NRRA of certain state laws regarding reinsurance agreements when applied to nondomestic insurers. Among other things, the amendments make it clear that foreign insurers no longer have to file indemnity reinsurance transactions for commissioner approval. The amendments also include changes conforming the regulations to a 2013 change in the California Insurance Code that prevents the Commissioner from denying financial statement credit to a foreign ceding insurer if that credit is recognized by the ceding insurer’s domestic state and that state’s solvency requirement have been accredited by the NAIC or are substantially similar to the NAIC standards.
The largest additions made by the amendments adopt NAIC Model #787, which the NAIC created to establish uniform minimum standards for securing the obligations under captive reinsurance treaties and reserve financing arrangements. Model #787 is expected to become part of the NAIC’s accreditation standards within the next few years, and the adoption of its provisions in these regulations is intended to ensure that California will meet those accreditation standards whenever that occurs.
Additionally, in the section of the regulations providing that a domestic insurer must generally “retain at least 10% of direct premium written per line of business,” the amendments replace the phrase “per line of business” with “per reinsurance agreement,” as the Commissioner has historically exercised his discretion to apply this retention requirement to reinsurance agreements as a whole, which often include multiple lines of business. Further, the amendments remove all references to and requirements for “volume insurers,” a concept that no longer exists under California law.
Cal. Code Regs. tit. 10, §§ 2303 – 2303.29; Cal. Office of Administrative Law, 2017-1012-04 (Nov. 27, 2017); Cal. Dept. of Ins., Initial Statement of Reasons, Reinsurance Oversight, REG-2016-00024 (May 1, 2017)
This post written by Jason Brost.
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IOWA AND VIRGINIA INSURANCE REGULATORS ADOPT THE NAIC’S TERM MODEL RULES GOVERNING TERM AND UNIVERSAL LIFE INSURANCE RESERVE FINANCING
Insurance regulators in Iowa and Virginia have adopted the NAIC’s Model Rules regulating term and universal life insurance reserve financing. The stated purpose of the rules is “to establish uniform, national standards governing reserve financing arrangements pertaining to life insurance policies containing guaranteed nonlevel gross premiums, life insurance policies containing guaranteed nonlevel benefits, and universal life insurance policies with secondary guarantees” and to require certain funds or securities to be held in association with such financing arrangements. The regulations “specif[y] additional requirements relating to the valuation of asset or reserve credits, the amount and forms of security supporting certain reinsurance arrangements, and the circumstances pursuant to which credit will be reduced or eliminated.
Both states provide a rule specifically prohibiting an insurer that has policies covered by the rules from “tak[ing] any action … or enter[ing] into any transaction … if the purpose of such action, transaction or arrangement … is to avoid the requirements of this chapter, or to circumvent its purpose and intent.”
The Iowa regulations take effect on January 10, 2018, and can be found at 191 – Chapter 112, Iowa Administrative Code. The Virginia regulations take effect on January 1, 2018, and can be found at Title 14, Chapter 318, Virginia Administrative Code.
This post written by Benjamin E. Stearns.
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WISCONSIN ADOPTS NEW CREDIT FOR REINSURANCE RULE BASED ON CERTIFIED REINSURERS
On November 7, 2017, the Commissioner of Insurance for the State of Wisconsin issued an order approving a new rule to be added to Section Ins. Ch. 52, Wis. Adm. Code. The rule is intended to modernize Wisconsin’s credit for reinsurance provisions by aligning them with the Nonadmitted and Reinsurance Reform Act of 2010 and amendments to the NAIC Credit for Reinsurance Model Law.
As currently written, reinsurers are required to post collateral equal to their total liability for ceding insurers in order for the insurers to take full credits for reinsurance. The new rule allows for the use of certified reinsurers. Certifications will be made at different levels based on financial strength ratings and will allow certified reinsurers to post less than 100 percent collateral on the risk they assume. Reinsurers with the three highest financial ratings will have lower collateral requirements of 0-10-20 percent, respectively. Reinsurers with the three lowest financial ratings will have collateral requirements of 50-75-100 percent, respectively. By making these revisions, Wisconsin’s reinsurance provisions will be consistent with changes made in other states. The new rule becomes effective on January 1, 2018.
This post written by Alex Silverman.
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