AMENDING AND CREATING A RULE.
Rule No. Agency 145 – Ch. Ins 40 The Commissioner of Insurance proposes the following rule to amend Ins 40.03 (5), (9) (title), (a) and (b); and to create Ins 40.01 (5g), (7p), (7s) (7w), (7y), and (8m), 40.03 (9) (a) (title), (b) (title), (c) (title), and (d) to (f), and 40.21, relating to holding company system regulation amendments.
The statement of scope for this rule SS 039-21, was approved by the Governor on April 15, 2021, was published in the Wisconsin Administrative Register No. 784B on April 26, 2021. The preliminary public hearing was held on May 24, 2021 and the scope was approved by the Commissioner on June 14, 2021. The proposed rule was approved by the Governor on February 17, 2022 to submit to the legislature, and submitted to the legislature on February 21, 2022. The rule passed through Senate and Assembly committees and the Joint Committee for Review of Administrative Rules on May 16, 2022 with no action taken.
Analysis prepared by the Office of the Commissioner of Insurance (OCI).
Statutes interpreted:
Statutory authority:
Explanation of OCI’s authority to promulgate the proposed rule:
The statutory authority for this rule is found in Wis. Stat. § 617.13 (1), that states specific authority as follows: The commissioner shall promulgate rules requiring certain insurers, as determined under the rules, to report their group capital calculations and liquidity stress tests, including the form of the reports and the manner and process for filing the reports.
Further, Wis. Stat. § 623.02, provides that when promulgating accounting rules, the commissioner shall consider recommendations made by the National Association of Insurance Commissioners (“NAIC”). Wis. Stats. §§ 623.03 and 623.04, grant the commissioner authority to promulgate rules specifying how insurers should account for assets and liabilities which would include liquidity stress tests and group capital calculations. Wis. Stats. § 617.11 (1), grants the commissioner authority to promulgate rules specifying the timing of reports including periodic reporting, the form and procedure for filing reports. Wis. Stats. § 617.21 (3r) authorizes the commissioner to promulgate rules for determining the adequacy of surplus related to holding companies and their affiliates. Additionally, the commissioner has general rule-making authority under Wis. Stat. §§ 601.41 and 227.11 (2) (a). Related statutes or rules:
Wis. Stats. ch. 617, and ch. Ins 40, Wis. Adm. Code, govern insurance holding companies. Wis. Stat. § 617.13 (2), governs the confidentiality of the group capital calculation and liquidity stress test filings and any related information provided by an insurer under promulgated rules. Plain language analysis:
The NAIC is a standard setting and regulatory support organization created and governed by the chief insurance regulators from the 50 states, the District of Columbia and five U.S. territories. It develops model laws and regulations using a committee structure that includes both members of the committee and interested regulators. The NAIC also provides an accreditation process for state insurance departments. Accreditation of the Office of the Commissioner of Insurance (OCI) by the NAIC helps Wisconsin insurers by ensuring that the OCI has full regulatory authority over its domestic insurers. It accomplishes this by subjecting domestic insurers to financial regulation only by their domestic commissioner if the state is accredited. Because Wisconsin is accredited, Wisconsin insurers are not subject to separate financial regulation in every state in which they do business. Recent changes in the NAIC model laws 440 and 450 are the bases for the proposed rule and are anticipated to become accreditation standards in 2022, and therefore, it is important to implement these changes into the Wisconsin holding company system regulations as soon as practicable.
The rule change would modernize Wisconsin’s holding company system provisions by adopting uniform standards for determining group-wide capital requirements in alignment with requirements of the agreement between the United States of America, the European Union, and the United Kingdom regarding insurance and reinsurance (“covered agreement”). The covered agreement was authorized by Title V of the Dodd-Frank Act that authorized the Secretary of the Treasury and the United States Trade Representative to jointly negotiate a covered agreement on behalf of the United States with one or more foreign governments, authorities, or regulatory entities. Failure to adopt these group capital standards before September of 2022 could result in Wisconsin law being preempted by the covered agreement.
Current monitoring focuses primarily on the risks related to, and solvency of, individual entities. The Group Capital Calculation is a new tool for monitoring the adequacy of capital of an insurance holding company group as a whole. The Liquidity Stress Test is a new tool to help monitor group liquidity risks. It would help identify insurance groups with liquidity stress and would enable an assessment of outward impacts on the broader financial markets of a liquidity stress impacting a large number of insurers simultaneously. The Liquidity Stress Test would only be required for large life insurers that meet certain criteria.
Summary of and comparison with any existing or proposed federal statutes and regulations:
There are not existing federal statutes or regulations but the framework for these changes can be found in the covered agreement.
Summary of any public comments and feedback on the statement of scope of the proposed rule that the agency received at any preliminary public hearing and comment period held under s. 227.136, Stat., and a description of how and to what extent the agency took those comments and that feedback into account in drafting the proposed rule. A preliminary hearing was held on May 24, 2021, with the comment period ending June 7, 2021. The office received only one comment from the Reinsurance Association of America in support of the proposed rule.
Comparison with rules in adjacent states:
Illinois: Public Act 102-0578 amended Ill. Admin. Code 215 §5/173.1 relating the NAIC holding company model regulation and law effective 12/31/2022.
Iowa: NA
Michigan: NA
Minnesota: NA
A summary of the factual data and analytical methodologies that OCI used in support of the proposed rule:
The OCI participated in the NAIC committee process that led to the adoption of these group capital standards.
Analysis and supporting documentation that OCI used in support of OCI’s determination of the rule’s effect on small business or in preparation of an economic impact analysis:
OCI identified some insurers that qualify as small businesses however, OCI does not believe that any of the insurance holding company systems that will be required to file a group capital calculation will meet the definition of a small business. No effect on small business is anticipated by this rule.
Description of the Effect on Small Business:
No effect on small business is anticipated by this rule. The rule is not expected to have any effect on insurers that qualify as small businesses. OCI does not believe that any of the insurance holding company systems that will be required to file a group capital calculation will meet the definition of a small business.
Agency contact person:
A copy of the full text of the proposed rule changes, analysis and fiscal estimate may be obtained from the website at:
or by contacting Karyn Culver, Paralegal, at:
Phone: (608) 267-9586
Address: 125 South Webster St – 2nd Floor, Madison WI 53703-3474
Mail: PO Box 7873, Madison, WI 53707-7873
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. A public hearing will be held compliance with s. 227.14 (4m), Stats., on January 13, 2022, via teleconference at the Office of the Commissioner of Insurance. Deadline for submitting comments is January 21, 2022, at 4:00 pm.
Julie Walsh
Legal Unit - OCI Rule Comment for Rule Ins 40
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 40.01 (5g), (7p), (7s), (7w), (7y), and (8m) are created to read:
Ins 40.01 (5g) “Group capital calculation instructions" means the group capital calculation instructions as adopted by the NAIC and as amended by the NAIC in accordance with the procedures adopted by the NAIC.
(7p) “Lead state” means the state as determined by state insurance regulators pursuant to the procedures within the Financial Analysis Handbook adopted by the NAIC.
(7s) “NAIC" means the national association of insurance commissioners.
(7w) “NAIC liquidity stress test framework” or “framework” means a NAIC publication which includes a history of the NAIC’s development of regulatory liquidity stress testing, the scope criteria applicable for a specific data year, and the liquidity stress test instructions and reporting templates for a specific data year, such scope criteria, instructions, and reporting template as adopted by the NAIC and as amended by the NAIC in accordance with the procedures adopted by the NAIC.
(7y) “Person” means an individual, a corporation, a limited liability company, a partnership, an association, a joint stock company, a trust, an unincorporated organization, any similar entity, or any combination of the foregoing acting in concert, but does not include any joint venture partnership exclusively engaged in owning, managing, leasing, or developing real or tangible personal property.
(8m) “Scope criteria” means the designated exposure bases along with minimum magnitudes thereof for the specified data year that is used to establish a preliminary list of insurers that are considered scoped into the NAIC liquidity stress test framework for that data year, as detailed in the NAIC liquidity stress test framework.
SECTION 2. Ins 40.03 (5) is amended to read:
Ins 40.03 (5) MATERIALITY. No information need be disclosed on the registration statement required under this section if the information is not material for the purposes of this section. Any transaction related to a management, exclusive agency or similar agreement or which is a service contract or cost-sharing arrangement is a material transaction. Any other transaction subject to sub. (3) is a material transaction if it involves or exposes to risk in a single transaction or group or series of related transactions an amount which is more than .5% of the insurer's admitted assets as of the 31st day of December of the immediately preceding calendar year, unless the commissioner by order provides otherwise. The definition of materiality provided in this subsection does not apply for purposes of the group capital calculation or the liquidity stress test framework.
SECTION 3. Ins 40.03 (9) (title) is amended to read:
Ins 40.03 (9) ENTERPRISE RISK FILING FILINGS.
SECTION 4. Ins 40.03 (9) (a) (title) is created to read:
Ins 40.03 (9) (a) Enterprise risk reports.
SECTION 5. Ins 40.03 (9) (a) is amended to read:
(a) Enterprise risk reports. Except as provided in par. (c), the ultimate controlling person of every insurer subject to registration shall file an annual enterprise risk report on form F in the appendix of this chapter. The report shall, to the best of the ultimate controlling person’s knowledge and belief, identify the material risks within the insurance holding company system that could pose enterprise risk to the insurer. The report shall be filed with the lead state commissioner of the insurance holding company system as determined by the procedures within the Financial Analysis Handbook adopted by the National Association of Insurance Commissioners. The time for filing the first enterprise risk report shall be June 1, 2015, or 30 days after the effective date of this rule, whichever date is later. Thereafter, the enterprise risk report shall be filed annually by June 1 for the immediately preceding calendar year. An applicant for an acquisition of control of an insurer under s. Ins 40.02 shall file an enterprise risk report within 15 days after the end of the month in which the acquisition of control occurs. SECTION 6. Ins 40.03 (9) (b) (title) is created to read:
Ins 40.03 (9) (b) Confidentiality.
SECTION 7. Ins 40.03 (9) (b) is amended to read:
Ins 40.03 (9) (b) Sections 19.31 to 19.37, Stats., do not apply to an insurer’s annual enterprise risk report or to any information submitted to the commissioner in connection with an insurer’s annual enterprise risk report and the report shall not be subject to subpoena, discovery or be admissible in evidence in any private civil action. The commissioner shall only share an insurer’s annual enterprise risk report, and any information requested by the commissioner in connection with an insurer’s annual enterprise risk report, with commissioners of states having statutes or regulations substantially similar to this subsection and who have agreed in writing not to disclose such information. For purposes of the information reported and provided to the commissioner pursuant to this paragraph and s. 617.13 (1), Stats., the information is confidential under s. 617.13 (2), Stats. The commissioner shall maintain the confidentiality of the group capital calculation and group capital ratio produced within the calculation and any group capital information received from an insurance holding company supervised by the Federal Reserve Board or any U.S. group wide supervisor pursuant to s. 617.13 (2), Stats. SECTION 8. Ins 40.03 (9) (c) (title) is created to read:
Ins 40.03 (9) (c) Waiver of filing enterprise risk report.
SECTION 9. Ins 40.03 (9) (d) to (f) are created to read:
