This past summer, the Texas legislature passed and the Governor signed a law that allows Texas insurers to negotiate reinsurance contracts with foreign reinsurers that do not require 100% collateral before the insurer can receive a “credit” for reinsurance on their financial statements. Prior to the passage of Senate Bill 1070 (“SB 1070”), Texas insurance law required reinsurers domiciled in other countries to post 100% collateral before the Texas insurer could receive the credit, regardless of the foreign reinsurer’s financial strength. The law evens the playing field between domestic reinsurers—who did not have to post 100% collateral before Texas insurers could claim the credit—and foreign reinsurers, paving the way for more access by Texas insurers to the world’s strongest reinsurers located abroad.
SB 1070 enacted a number of substantive changes to the Texas Insurance Code to effectuate that broad mandate, including:
- authorizing insurers authorized to engage in business in Texas to provide reinsurance on any line of insurance in which the insurer is authorized to engage in the state (previously, the authorization to provide reinsurance was limited to only those insurers authorized to write property and casualty insurance);
- authorizing credit for reinsurance ceded as an asset or a deduction from liability for assuming insurers certified as reinsurers in Texas that maintain adequate collateral as determined by the commissioner;
- requiring the assuming insurers meet certain criteria, before the credit will be allowed, such as:
- certification by the commissioner;
- domicile and license to transact insurance or reinsurance in a qualified jurisdiction;
- minimum capital and surplus;
- sufficient financial strength ratings; and others
- authorizing associations of incorporated and individual unincorporated underwriters to act as certified reinsurers;
- requiring the commissioner to develop a list of qualified jurisdictions in which an assuming insurer must be licensed and domiciled in order to be certified for the credit-for-reinsurance provisions above;
- requiring the commissioner to assign a rating to certified reinsurers based on financial strength rating and to publish a list of those ratings; and
- amending the Insurance Code’s trust requirements.
The law’s effective date was September 1, 2017; but the changes are only applicable to reinsurance contracts entered into or renewed after January 1, 2018. A legislative analysis also has been published.
This post written by Thaddeus Ewald .
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