Regulators need to be able to assess and monitor the risks posed with respect to captive reinsurance transactions, and the regulatory process is enhanced through uniform application by regulators when reviewing these transactions. This rule change would align Wisconsin’s regulation with the NAIC model and the regulations of other states.
In general, reinsurance ceded for reserve financing purposes has one or more of the following characteristics: some or all of the assets used to secure the reinsurance treaty or to capitalize the reinsurer (1) are issued by the ceding insurer or its affiliates; or (2) are not unconditionally available to satisfy the general account obligations of the ceding insurer; or (3) create a reimbursement, indemnification or other similar obligation on the part of the ceding insurer or any if its affiliates, other than a payment obligation under a derivative contract acquired in the normal course and used to support and hedge liabilities pertaining to the actual risks in the policies ceded pursuant to the reinsurance treaty. The proposed rule would require that in order to take credit for reinsurance ceded with respect to each such financing arrangement, security must be held by or on behalf of a ceding insurer. The rule prescribes the actuarial method to be used to determine the amount of primary security, and that other security, as defined in the rule, must be held equal to any portion of the statutory reserves as to which primary security is not held.
6. Summary of, and preliminary comparison with, any existing or proposed federal regulation that is intended to address the activities to be regulated by the proposed rule:
Public Law 111-203 Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) that contains the Nonadmitted and Reinsurance Reform Act of 2010.
7. Comparison of similar rules in adjacent states as found by OCI:
Laws and Rules related to Requirements for Credit for Reinsurance:
Illinois: Public Act 102-0578 amended Ill. Admin. Code 215 §§ 5/35B-25, 5/131.1, 131.5,131.14b, 131.15, 131.22, 131.22a relating to the NAIC reinsurance model regulation and law effective 12/31/2022.
Iowa: Iowa Code §§ 521B.101A to 521B-105 (2021) and Iowa Admin Code r. 5.33 and 112.7 (1) “e” (2021) relating to the NAIC reinsurance model regulation and law.
Michigan: Mich. Comp. Laws §§ 500.1103 and 500.1106 relating to the NAIC reinsurance model regulation and law. Minnesota: MN HF 6, signed 6/26/2021, Minn. Statutes sections 60A.092 (10), 60A.093, 60A.096 and 60A.097 amended implementing the NAIC reinsurance model regulation and law.
Laws and Rules related to Term and Universal Life Reserve Financing:
Illinois: None.
Iowa: Iowa Code §§ 521B.102, 521B.103 (2017), and 521B-105 and Iowa Admin Code r. 191-112.1 to 112.9 (2017)
Michigan: None.
Minnesota: None
8. A summary of the factual data and analytical methodologies that OCI used in support of the proposed rule and how any related findings support the regulatory approach chosen for the proposed rule:
OCI based this rule on the model law and regulations that were adopted by NAIC and have been enacted or will likely be enacted by all accredited jurisdictions in the United States and Territories. Failure to adopt the NAIC model law and regulation may result in OCI being preempted to regulate certain transactions.
9. Any analysis and supporting documentation that OCI used in support of OCI’s determination of the rule’s effect on small businesses under s. 227.114: This rule will have little or no effect on small businesses. This rule will reduce the collateral requirements of certain reinsurers with at least $250,000,000 in capital so it would not affect small businesses. There may be some insurers that qualify as small businesses who cede risk to reinsurers but the rule is not expected to have any effect on their ability to take credit for reinsurance ceded and could make it easier to do business with a reinsurer.
10. A description of the Effect on Small Business:
This rule will reduce the collateral requirements of certain reinsurers with at least $250,000,000 in capital so it would not affect small businesses. There may be some insurers that qualify as small businesses who cede risk to reinsurers but the rule is not expected to have any effect on their ability to take credit for reinsurance ceded and could make it easier to do business with a reinsurer.
11. Agency contact person:
Phone: (608) 267-9586
Address: 125 South Webster St – 2nd Floor, Madison WI 53703-3474
Mail: PO Box 7873, Madison, WI 53707-7873
12. Place where comments are to be submitted and deadline for submission:
Persons wishing to testify or provide oral or written comments regarding the proposed administrative rule may appear during the hearing. Additionally, the rule may be reviewed and comments made at https://docs.legis.wisconsin.gov/code or sent to the following: The deadline for submitting comments is 4:00 p.m. on October 1, 2021.
Written comments can be mailed or hand-delivered to:
Julie Walsh
Legal Unit - OCI Rule Comment for Rule Ins 52
Office of the Commissioner of Insurance
125 South Webster St – 2nd Floor
Madison WI 53703-3474
Email address:
The proposed rule changes are:
SECTION 1. Ins 52 Subchapter I (title) (precedes s Ins 52.005, as created in this order) is created to read:
SUBCHAPTER I
REQUIREMENTS FOR CREDIT FOR REINSURANCE
SECTION 2. Ins 52.005 is created to read:
Ins 52.005 Purpose and intent. The purpose of this subchapter is to protect the interest of insureds, claimants, ceding insurers, assuming insurers, and the public generally. The intent is to ensure adequate regulation of insurers and reinsurers, and adequate protection for those to whom they owe obligations. In furtherance of this interest, the commissioner hereby provides that upon the insolvency of a non-United States insurer or reinsurer that provides security to fund its United States obligations in accordance with this subchapter, the assets representing the security shall be maintained in the United States and claims shall be filed with and valued by the state insurance commissioner with regulatory oversight, and the assets shall be distributed, in accordance with the insurance laws of the state in which the trust is domiciled that are applicable to the liquidation of domestic United States insurance companies. This subchapter sets forth rules and procedural requirements that the commissioner deems necessary to carry out the provisions of this subchapter. The actions and information required by this subchapter are declared to be necessary and appropriate in the public interest and for the protections of the ceding insurers in this state. The commissioner further declares that the matters contained in this subchapter are fundamental to the business of insurance in accordance with 15 USC 1011-1012. SECTION 3. Ins 52.01 (intro.) is amended to read:
Ins 52.01 Definitions. In this chapter subchapter, unless the context otherwise requires:
SECTION 4. Ins 52.01 (1) is renumbered (1m).
SECTION 5. Ins 52.01 (1g), (4), and (5) are created to read:
Ins 52.01 (1g) “Covered agreement” means an agreement entered into pursuant to Dodd-Frank Wall Street Reform and Consumer Protection Act, 31 USC 313 and 314, that is currently in effect or in a period of provisional application and addresses the elimination, under specified conditions, of collateral requirements as a condition for entering into any reinsurance agreement with a ceding insurer domiciled in this state or for allowing the ceding insurer to recognize credit for reinsurance. (4) “Reciprocal jurisdiction” is a jurisdiction, as designated by the commissioner pursuant to s. Ins 52.02 (4r) (b), of this subchapter, that meets one of the following conditions: (a) A non-United States jurisdiction that is subject to an in-force covered agreement with the United States, each within its legal authority, or, in the case of a covered agreement between the United States and European Union, is a member state of the European Union.
(b) A United States jurisdiction that meets the requirements for accreditation under the financial standards and accreditation program of the national association of insurance commissioners.
(c) A qualified jurisdiction, as determined by the commissioner pursuant to s. Ins 52.02 (4m) (c), and which is not otherwise described in pars. (a) or (b) of this subsection, consistent with the terms and conditions of in-force covered agreements, as specified by the commissioner, and which meets all of the following additional requirements: 1. Provides that an insurer which has its head office or is domiciled in such qualified jurisdiction shall receive credit for reinsurance ceded to a United States-domiciled assuming insurer in the same manner as credit for reinsurance is received for reinsurance assumed by insurers domiciled in such qualified jurisdiction.
2. Does not require a United States-domiciled assuming insurer to establish or maintain a local presence as a condition for entering into a reinsurance agreement with any ceding insurer subject to regulation by the non-United States jurisdiction or as a condition to allow the ceding insurer to recognize credit for such reinsurance.
3. Recognizes the United States state regulatory approach to group supervision and group capital, by providing written confirmation by a competent regulatory authority, in such qualified jurisdiction, that insurers and insurance groups that are domiciled or maintain their headquarters in this state or another jurisdiction accredited by the national association of insurance commissioners shall be subject only to worldwide prudential insurance group supervision including worldwide group governance, solvency and capital, and reporting, as applicable, by the commissioner or the commissioner of the domiciliary state and will not be subject to group supervision at the level of the worldwide parent undertaking of the insurance or reinsurance group by the qualified jurisdiction.
4. Provides written confirmation by a competent regulatory authority in such qualified jurisdiction that information regarding insurers and their parent, subsidiary, or affiliated entities, if applicable, shall be provided to the commissioner in accordance with a memorandum of understanding or similar document between the commissioner and such qualified jurisdiction, including but not limited to the International Association of Insurance Supervisors Multilateral Memorandum of Understanding or other multilateral memoranda of understanding coordinated by the national association of insurance commissioners.
(5) “Solvent scheme of arrangement” means a foreign or alien statutory or regulatory compromise procedure subject to requisite majority creditor approval and judicial sanction in the assuming insurer’s home jurisdiction either to finally commute liabilities of duly noticed classed members or creditors of a solvent debtor, or to reorganize or restructure the debts and obligations of a solvent debtor on a final basis, and which may be subject to judicial recognition and enforcement of the arrangement by a governing authority outside the ceding insurer’s home jurisdiction.
SECTION 6. Ins 52.02 (intro) is amended to read:
Ins 52.02 Except as provided by s. Ins 52.04 and unless otherwise prohibited by the commissioner, with any such prohibition not to be in contravention of an applicable covered agreement, a domestic insurer may take credit for ceded reinsurance as either an asset or a deduction from liability only if the reinsurer at all times complies with one or more of the following: SECTION 7. Ins 52.02 (3) (intro) is amended to read:
Ins 52.02 (3) The reinsurer is domiciled and licensed in, or in the case of a United States branch of an alien assuming insurer is entered through, a state which employs standards regarding credit for reinsurance which the commissioner determines equal or exceed the standards applicable under this chapter subchapter and the reinsurer or United States branch of an alien reinsurer:
SECTION 8. Ins 52.02 (4m) (a) 3. c. (Note) is created to read:
Ins 52.02 (4m) (a) 3.c. (Note) Note: Forms CR-F and CR-S are published as Chapter Ins 52 Appendices D to H. SECTION 9. Ins 52.02 (4m) (a) 3. g. is amended to read:
Ins 52.02 (4m) (a) 3. g. For certified reinsurers not domiciled in the U.S., audited financial statements on a U.S. GAAP basis, regulatory filings, and actuarial opinions opinion, as filed with the non-U.S. jurisdiction supervisor with a translation into English. Audited IFRS basis statements are allowed in lieu of a U.S. GAAP basis statement if they include an audited footnote reconciling equity and net income to a U.S. GAAP basis, or, with the commissioner's approval, audited IFRS basis statements with reconciliation to U.S. GAAP certified by an officer of the company. Upon initial application for certification, the commissioner shall consider audited financial statements for the previous three last two years filed with its non-U.S. jurisdiction supervisor.;
SECTION 10. Ins 52.02 (4m) (a) 5. b. (Note) is created to read:
Ins 52.02 (4m) (a) 5. b. (Note) Note: Forms CR-F and CR-S are published as Chapter Ins 52 Appendices D to H. SECTION 11. Ins 52.02 (4m) (a) 5. d. is amended to read:
Ins 52.02 (4m) 5. d. Annually, the most recent audited financial statements, regulatory filings, and actuarial opinion, as filed with the certified reinsurer's supervisor with a translation into English. Upon the initial certification, audited financial statements for the last three two years filed with the certified reinsurer's supervisor. Audited financial statements should be provided on a U.S. GAAP basis if available. Audited IFRS basis statements are allowed but must include an audited footnote reconciling equity and net income to a U.S. GAAP basis, or, with permission of the commissioner, audited IFRS statements with reconciliation to U.S. GAAP certified by an officer of the company.
SECTION 12. Ins 52.02 (4m) (e) is amended to read:
Ins 52.02 (4m) (e) A certified reinsurer that ceases to assume new business from ceding insurers domiciled 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 chapter subchapter, and the commissioner shall assign a rating that takes into account the reasons why the reinsurer is not assuming new business.
SECTION 13. Ins 52.02 (4r) is created to read:
Ins 52.02 (4r) The reinsurance is ceded to an assuming insurer that has been recognized by the commissioner as a reinsurer in a reciprocal jurisdiction, in accordance with pars. (a) to (h).
(a) Credit shall be allowed when the reinsurance is ceded from an insurer domiciled in this state to an assuming insurer meeting each of the conditions set forth below.
1. The assuming insurer shall be licensed to transact reinsurance by, and have its head office or be domiciled in, a reciprocal jurisdiction.
2. The assuming insurer shall have and maintain on an ongoing basis minimum capital and surplus, or its equivalent, calculated on at least an annual basis as of the preceding December 31 or at the annual date otherwise statutorily reported to the reciprocal jurisdiction, and confirmed as set forth in subd. 7, according to the methodology of its domiciliary jurisdiction, in the following amounts:
