Credit for reinsurance.

ORIGINAL
House
Bill No
.
HB0007

ENROLLED ACT NO.
21,

HOUSE OF REPRESENTATIVES

SIXTY-FOURTH LEGISLATURE OF THE STATE OF WYOMING
2017 General Session

AN ACT relating to insurance; revising reinsurer requirements; establishing procedures relating to reinsurer suspension and revocation; mandating reinsurers manage reinsurance recoverables and programs as specified; creating notification requirements under specified conditions; specifying the insurance commissioner's rulemaking authority applicable to reinsurance arrangements; and providing for an effective date.

Be It Enacted by the Legislature of the State of Wyoming:

Section 1
.

W.S. 26
‑
5
‑
112(a)(intro)
, (ii)(C), by creating a new sub
paragraph (E), (iv), (v)
, by creating a new paragraph (
vi),

(c)(intro)
, (ii)
and by creating new subsections (
e
) through (
h
),

26
‑
5
‑
113(a)
(
intro
),
(ii) and (iii)
and
26
‑
5
‑
116 by creating
new
subsections (c) through (g) are amended to read
:

26
‑
5
‑
112
.

Credit allowed a domestic ceding insurer.

(a)

Except as provided in W.S. 26
‑
5
‑
113,

and
in addition to any rules adopted by the commissioner
pursuant to W.S. 26
‑
5
‑
116 relating to the valuation of assets or reserve credits, the amount and forms of security supporting reinsurance arrangements
and
the circumstances pursuant to which credit will be reduced or eliminated,

credit for reinsurance shall be allowed a domestic ceding insurer as either an asset or a deduction from liability on account of reinsurance ceded only if

the reinsurer meets the requirements of any one (1) of the following paragraphs
:

(ii)

The reinsurance is ceded to an assuming insurer which is accredited as a reinsurer in this state
and whose accreditation has not been revoked by the commissioner.

An accredited reinsurer is one which:

(C)

Is licensed to transact insurance or reinsurance in at least one (1) state, or in the case of a United States branch of an alien assuming insurer is entered through and licensed to transact insurance or reinsurance in at least one (1) state;
and

(E)

Demonstrates to the satisfaction of the commissioner that it has adequate financial capacity to meet its reinsurance obligations and is otherwise qualified to assume rein
surance from domestic insurers.
An assuming insurer is deemed to meet this requirement as of the time of its application if it maintains a surplus as regards policyholders in an amount
not less than twenty million dollars ($20,000,000.00) and its accreditation has not been denied by the commissioner within ninety (90) days after submission of its application
.

(iv)

The reinsurance is ceded to an assuming insurer not meeting the requirements of paragraphs (i) through (iii) or (v) of this subsection but only with respect to the insurance of risks located in jurisdictions where such reinsurance is required by applicable law or regulation of that jurisdiction;
or

(v)

The reinsurance is ceded to an assuming insurer which maintains a trust fund in a qualified United States financial institution, as defined in W.S. 26
‑
5
‑
114(b), for the payment of the valid claims of its United States policyholders and ceding insurers, their assigns and successors in interest. The assuming insurer shall report annually to the commissioner information substantially the same as that required to be reported on
the
NAIC
annual statement form by licensed insurers to enable the commissioner to determine the sufficiency of the trust fund.
The assuming insurer shall submit to examination of its books and records by the commissioner and bear the expense of examination.
In the case of:

(A)

In the case of
A
single assuming insurer, the trust shall consist of a trusteed account representing the assuming insurer
'
s liabilities attributable to business written in the United States and, in addition, the assuming insurer shall maintain a trusteed surplus of not less than twenty million dollars ($20,000,000.00)
.

At any time after the assuming insurer has permanently discontinued underwriting new business secured by the trust for at least three
(3)
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.

The risk assessment may involve an actuarial review, including an independent analysis of reserves and cash flows, and shall 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 i
nsurer
'
s liquidity or solvency.
The minimum required trusteed surplus may not be reduced to an amount less than thirty percent (30%) of the assuming insurer
'
s liabilities attributable to reinsurance ceded by
United States
ceding insurers covered by the trust
;

(B)

In the case of

A
group including incorporated and individual unincorporated underwriters, the trust shall consist of a trusteed account representing the group
'
s liabilities attributable to business written in the United States and, in addition:

(A)
(I)

The
group shall maintain a trusteed surplus of which one hundred million dollars ($100,000,000.00) shall be held jointly for the benefit of United States ceding insurers of any member of the group;

(B)
(
II
)

Within ninety (90) days after its financial statements are due,
t
he group shall make available to the commissioner an annual certification of the solvency of each underwriter by the group
'
s domiciliary regulator and its independent public accountants; and

(C)
(
III
)

The incorporated members of the group shall not be engaged in any business other than underwriting as a member of the group and shall be subject to the same level of solvency regulation and control by the group
'
s domiciliary regulator as are the unincorporated members.

(vi)

T
he
reinsurance is ceded to an assuming insurer
that

is
certified by the commissioner as a reinsurer in this state and secures its obligations
in accordance with the following provisions
:

(A)

Prior to certification by the commissioner, the assuming insurer must be eligible for certification.
In order to be eligible for certification, the assuming insurer shall:

(
I
)

B
e
domiciled and licensed to transact insurance or reinsurance in a qualified jurisdiction, as determined by the commissioner pursuant to
subpara
graph (C) of this paragraph
;

(
II
)

M
aintain minimum capital and surplus, or its equivalent, in an amount to be determined by
rule and regulation of the commissioner
;

(III
)

M
aintain financial strength ratings from two
(2)
or more rating agencies deemed acceptable by
rule and regulation of the commissioner
;

(IV
)

A
gree to submit to the jurisdiction of this state, appoint the commissioner as its agent for service of process in this st
ate
and agree to provide security for
one

hundred percent (
100
%)
of the assuming insurer
'
s liabilities attributable to reinsurance ceded by
United States
ceding insurers if it res
ists enforcement of a final United States
judgment;

(
V
)

A
gree to meet applicable information filing requirements as determined by the commissioner, both with respect to an initial application for certification and on an ongoing basis; and

(
VI
)

S
atisfy any other requirements for certification deemed
necessary
by the commissioner.

(
B
)

Prior to certification by the commissioner, a
n association including incorporated and individual unincorporated underwriters
must be eligible for certification by the commissioner
. In order to be eligible for certification,
an association must
satisfy
the

requirements of subparagraph (A
)
of this paragraph
and
comply with the following requirements
:

(I
)

The association shall satisfy its minimum capital and surplus requirements through the
capital and surplus equivalents
, taking into account liabilities,

of the association and its members, which shall include a joint central fund that may be applied to any unsatisfied obligation of the association or any of its members, in an amount determined by the commissioner to provide adequate protection;

(II
)

The incorporated members of the association shall not be engaged in any business other than underwriting as a member of the association and shall be subject to the same level of regulation and solvency control by the association
'
s domiciliary regulator as are the unincorporated members; and

(III
)

Within ninety (90) days after its financial statements are due to be filed with the association
'
s domiciliary regulator, the association shall provide to the commissioner an annual certification by the association
'
s domiciliary regulator of the solvency of each underwrit
er member or
,
i
f
a certification is unavailable
,
financial statements, prepared by independent public accountants, of each underwr
iter member of the association.

(
C
)

Prior to
certification, the assuming insurer must be licensed and domiciled in a jurisdiction eligible to be considered for certification by the commissioner.
The commissioner shall create and publish a list of qualified jurisdictions, under which an assuming insurer licensed and domiciled in such jurisdiction is eligible to be considered for certification by the
commissioner as a certified reinsurer.
The commissioner shall:

(
I
)

In order to determine whether the domici
liary jurisdiction of a non

United States
assuming insurer is eligible to be recognized as a qualified jurisdiction, 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 the extent of reciprocal recognition afforded by the non

United States
jurisdiction to reinsurers l
icensed and domiciled in the United States
. A qualified jurisdiction
shall
agree to share information and cooperate with the commissioner with respect to all certified reinsurers domiciled within that jurisdiction. A jurisdiction
shall
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;

(
II
)

Consider the
list
of qualified jurisdictions published through the NAIC committee process
in determining qualified jurisdictions. If the commissioner approves a jurisdiction as qualified that does not appear on the list of qualified jurisdictions, the commissioner shall provide thoroughly documented justification in accordance with criteria
developed under rule and regulation
developed by
the commissioner
;

(
III
)

Recognize as qualified jurisdictions the
United States
jurisdictions that meet the requirement for accreditation under the NAIC financial standards and accreditation program
;

(
IV
)

If a certified reinsurer
'
s domiciliary jurisdiction ceases to be a qualified jurisdiction,
have
the discretion to suspend the reinsurer
'
s certification indefinitely, in lieu of revocation.

(
D
)

Each certified reinsurer must receive a financial rating from the commissioner.
The commissioner shall assign a rat
ing to each certified reinsurer
giving due consideration to the financial strength ratings that have been assigned by rating agencies deemed acceptable to the commissioner pursuant to regulation. The commissioner shall publish a list of all certified reinsurers and their ratings
;

(
E
)

A certified reinsurer shall secu
re obligations assumed from Unite
d
States
ceding insurers under this
paragraph
at a level consistent w
ith its rating and as
specified by rule and regulation

promulgated by the commissioner
. In fulfilling the requirements of this subparagraph:

(
I
)

In order for a domestic ceding insurer to qualify for full financial statement credit for reinsurance ceded to a certified reinsurer, the certified reinsurer shall maintain security in a form acceptable to the commissioner and consistent with the provisions of
W.S. 26
‑
5
‑
113
, or in a multibeneficiary trust in accordance
with
paragraph
(
v)
of this
sub
section
and subsection (b)
of this section
, except as otherwise provided in this
paragraph
;

(
II
)

If a certified reinsurer maintains a trust to fully se
cure its ob
ligations subject to paragraph
(v)
of this subsection
and subsection (b)
of
this section
and chooses to secure its obligations incurred as a certified reinsurer in the form of a multibeneficiary trust, the certified reinsurer shall maintain separate trust accounts for its obligations incurred under reinsurance agreements issued or renewed as a certified reinsurer with reduced security as permitted by this
paragraph
or comparable laws of other U
nited
S
tates
jurisdictions and for its obligations subject to
paragraph
(v)
of this
sub
section
and subsection (b)
of this section
. It shall be a condition to the grant of certification under
this paragraph
that the certified reinsurer have bound itself, by the language of the trust and agreement with the commissioner with principal regulatory oversight of each trust account, to fund, upon termination of any trust account, out of the remaining surplus of
the
trust any deficiency
of any other
trust account;

(
III
)

The minimum trusteed surplus requirements provided in
paragraph
(v) of this
sub
section
are not applicable with respect to a multibeneficiary trust maintained by a certified reinsurer for the purpose of securing obligations incurred under this
paragraph
, except that
any
trust shall maintain a minimum trusteed surplus of
ten million dollars

(
$10,000,000
.00);

(
IV
)

With respect to obligations incurred by a certified reinsurer under this
paragraph
, if the security is insufficient, the commissioner shall reduce the allowable credit by an amount proportionate to the deficiency and
may
impose further reductions in allowable credit upon finding there is a material risk the certified reinsurer
'
s obligations wi
ll not be paid in full when due;

(
V
)

For purposes of this
paragraph
, a certified reinsurer whose certification has been terminated
for any reason shall be treated as a certified reinsurer required to secure
one hundred percent (100%)
of its obligations
. If the commissioner continues to assign a higher rating as permitted by other provisions of this section, this requirement does not apply to a certified reinsurer in inactive status or to a reinsurer whose certification has been suspended.

As used in

this subdivision
,
"
terminated
"
refers to revocation, suspension, voluntar
y surrender and inactive status
.

(
F
)

If an applicant for certification has been certified as a reinsurer in an NAIC accredited jurisdiction, the commissioner
may
defer to th
at jurisdiction
'
s certification
and
may
defer to the rating assigned by that jurisdiction, and
the
assuming insurer shall be considered to be a ce
rtified reinsurer in this state;

(
G
)

A certified reinsurer that ceases to assume new business in this state may request to maintain its certification in inactive status in order to continue to qualify for a reduction in security for its in
‑
force business. An inactive certified reinsurer shall continue to comply with all applicable requirements of this
paragraph
, and the commissioner shall assign a
rating that takes into account
the reasons why the reinsurer is not assuming new business
, if relevant
.

(c)

If the assuming insurer is not licensed
, certified
or accredited to transact insurance or reinsurance in this state, the credit permitted by paragraphs (a)(iii) and (v) of this section shall not be allowed unless the assuming insurer agrees in the reinsurance agreements:

(ii)

To designate the commissioner as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the ceding
company

insurer
.

(e)

If an accredited or certified reinsurer ceases to meet the requirements for accreditation or certification, the commissioner may suspend or revoke the reinsurer
'
s accreditation or certification
in accordance with the following:

(i)

The commissioner
shall
give the reinsurer notice and opportunity for hearing.

The suspension or revocation
shall
not take effect until after the commissioner
'
s order on hearing, unless:

(A)

The reinsurer waives its right to a hearing;

(B)

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
subparagraph

(a)(vi)(F)
of this section; or

(C)

The commissioner finds that an emergency requires immediate action and a court of competent jurisdiction
has
not stayed the commissioner
'
s action.

(ii)

While a reinsurer
'
s accreditation or certification is suspended, no reinsurance contract issued or renewed after the effective date of the suspension
qualifies for credit except to the extent that the reinsurer
'
s obligations under the contract are secured in accordance with
W.S. 26
‑
5
‑
113
.
If a reinsurer
'
s accreditation or certification is revoked, no credit for reinsurance may 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
subparagraph

(a)(vi)(E) of this section
or
W.S. 26
‑
5
‑
113
.

(f)

A ceding insurer shall take steps to manage its reinsurance recoverables proportionate to its own book of business. A domestic ceding insurer shall notify the commissioner within thirty (30) days after reinsurance recoverables from any single assuming insurer or group
of affiliated assuming insurers
exceeds fifty percent (50%) of the domestic ceding insurer
'
s last reported surplus to policyholders, or after it is determined that reinsurance recoverables from any single assuming insurer or group
of affiliated assuming insurers
is likely to exceed this limit. The notification shall demonstrate that the exposure is safely managed by the domestic ceding insurer.

(g)

A ceding insurer shall take steps to diversify its reinsurance program. A domestic ceding insurer shall notify the commissioner within thirty (30) days after ceding
to any single assuming insurer
or group of
affiliated assuming insurers
more than twenty percent (20%) of the ceding insurer
'
s gross written premium in the prior calendar year, or after it has determined that the reinsurance ceded
to any single assuming insurer
or group of affiliated assuming in
surers
is likely to exceed this limit. The notification shall demonstrate the exposure is safely managed by the domestic ceding insurer.

(h)

Credit for reinsurance ceded to a certified reinsurer is limited to reinsurance contracts entered or renewed on or after the effective date of the certification of the assuming insurer by the commissioner.

26
‑
5
‑
113
.

Reduction from liability for reinsurance ceded by a domestic insurer to an assuming insurer.

(a)

A reduction from liability for the reinsurance ceded by a domestic insurer to an assuming insurer not meeting the requirements of W.S. 26
‑
5
‑
112 shall be allowed in an amount not exceeding the liabilities carried by the ceding insurer
,

and such
provided that the commissioner may ad
opt
rules and regulations establishing
additional requiremen
ts relating to or setting forth
the valuati
on of assets or reserve credits,
the amount and forms of security supporting reinsurance arrangements described in
W.S. 26
‑
5
‑
116 and
the circumstances pursuant to which credit will be reduced or eliminated. The

reduction shall be in the amount of funds held by or on behalf of the ceding insurer, including funds held in trust for the ceding insurer, under a reinsurance contract with the assuming insurer as security for the payment of obligations thereunder, if the security is held in the United States subject to withdrawal solely by, and under the exclusive control of, the ceding insurer, or, in the case of a trust, held in a qualified United States financial institution, as defined in W.S. 26
‑
5
‑
114(b).

This security may be in the form of:

(ii)

Securities listed by the securities valuation office of the
National Association of Insurance Commissioners

NAIC
, including those deemed exempt
from filing as defined by the p
urposes a
nd procedures m
anual of
the
NAIC securities valuation o
ffice,
and qualifying as admitted assets;

(iii)

Clean, irrevocable, unconditional letters of credit issued or confirmed by a qualified United States institution no later than December 31 in respect of the year for which filing is being made, and in the possession of the ceding
company
insurer

on or before the filin
g date of its annual statement.
Letters of credit meeting applicable standards of issuer acceptability as of the dates of their issuance or confirmation shall, notwithstanding the issuing or confirming institution
'
s subsequent failure to meet applicable standards of issuer acceptability, continue to be acceptable as security until their expiration, extension, renewal, modification or amendment, whichever first occurs; or

26
‑
5
‑
116
.

Rules and regulations; reporting.

(c)

In addition to the authority provided
by subsection (a) of this section
, the commissioner may adopt rules and regulations
applicable to reinsurance arrangements.
A
regulation adopted pursuant to this subsection may apply only to reinsurance relating to
:

(
i
)

Life insurance policies with guaranteed nonlevel gross premiums or guaranteed nonlevel benefits;

(
ii
)

Universal life insurance policies with provisions resulting in the ability of a policyholder to keep a policy in force over a secondary guarantee period;

(
iii
)

Variable annuities with guaranteed death or living benefits;

(
iv
)

Long
‑
term
care insurance policies; or

(
v
)

Any
other life and health insurance and annuity products as to which the NAIC adopts model regulatory requirements with respect to credit for reinsurance.

(
d
)

A
regulation adopted pursuant to paragraph (c
)(
i) or (ii) of this section
may apply to
a
treaty containing policies issued on or after January 1,
2015

and
policies issued prior to January 1, 2015 if
the
risk pertai
ning to the
policies
issued prior to January 1, 2015
is ceded in connection with the treaty, in whole or in part, on or after January 1, 2015.

(
e
)

A regul
ation adopted pursuant to subs
ection
(c) of this section
may require the ceding insurer, in calculating the amounts or forms of security required to be held under
rule
s promulgated un
der this
section
, to use the valuation m
a
nual adopted by the NAIC under section
11B(
1) of the NAIC standard valuation l
aw, including all amendments adopted by the NAIC and in effect on the date the calculation is
made, to the extent applicable.

(
f
)

A regulation adopted pursuant to
subsection (c) of this section
shall not apply to cessions to an assuming insurer that:

(
i
)

Is certified in this state or, if this state has not adopted provisions substantially equivalent to
s
ection 2E of the Credit for Reinsurance Model Law, certified in a minimum of five (5) other states; or

(
ii
)

Maintains at least
two hundred fifty million dollars (
$250
,000,000.00)
in capital and surplus
when determined in accordance with the NAIC
accounting practices and procedures m
anual, including all amendments adopted by the NAIC, excluding the impact of any permitted or prescribed practices
,
and is
:

(
A
)

L
icensed in at least
twenty
‑
six (
26
)
states; or

(
B
)

L
icensed in at least
ten (
10
)
states
and licensed or accredited in a total of at least
thirty
‑
five (
35
)
states.

(
g
)

The authority to adopt
rules
pursuant
to subsection (c) of this section
does not limit the commissioner
'
s general authority to adopt
rules
pursuant to
subsection (a) of this section
.

Section

2
.

W.S. 26
‑
5
‑
112(
a)(ii)(D)(I) and (II)
is
repealed.

Section 3
.

This
act is effective July 1,
201
7
.

(END)

Speaker of the House

President of the Senate

Governor

TIME APPROVED: _________

DATE APPROVED: _________

I hereby certify that this act originated in the
House
.

Chief
Clerk

1