House Bill 0247c1

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    Florida House of Representatives - 2000              CS/HB 247

        By the Committee on Insurance and Representative Bradley






  1                      A bill to be entitled

  2         An act relating to reinsurance; amending s.

  3         624.610, F.S.; setting the conditions for the

  4         allowance of credit for reinsurance; providing

  5         definitions; providing for grounds for denial

  6         or revocation of an assuming insurer's

  7         accreditation; providing criteria for the

  8         disallowance of credit for reinsurance for a

  9         ceding insurer; providing for the payment of

10         costs and expenses; providing conditions for

11         the allowance or disallowance of credit for

12         reinsurance for assuming insurers maintaining

13         trust funds in qualified United States

14         financial institutions; providing intent that

15         there is no conflict with arbitration

16         agreements; providing for security; providing

17         for the inclusion of certain health maintenance

18         organizations within the term "ceding insurer";

19         providing conditions for the disallowance of

20         credit with respect to a ceding domestic

21         insurer; providing conditions for credit for

22         reinsurance in cases of insolvency; providing

23         for rights against a reinsurer; providing

24         prohibitions applying to authorized insurers,

25         other than certain surplus lines insurance;

26         providing procedures and information required

27         for a summary statement of each treaty;

28         providing for exemptions from requirement of

29         summary statements; providing for waiver;

30         providing for cancellation; providing that

31         there is no credit when there is no transfer of

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  1         risk; granting authority to the Department of

  2         Insurance for rulemaking; requiring compliance

  3         with certain standards; requiring termination

  4         of approval of certain reinsurers under certain

  5         circumstances; providing an effective date for

  6         the application of cessions; providing an

  7         effective date.

  8

  9  Be It Enacted by the Legislature of the State of Florida:

10

11         Section 1.  Section 624.610, Florida Statutes, is

12  amended to read:

13         (Substantial rewording of section. See

14         s. 624.610, F.S., for present text.)

15         624.610  Reinsurance.--

16         (1)  The purpose of this section is to protect the

17  interests of insureds, claimants, ceding insurers, assuming

18  insurers, and the public.  It is the intent of the Legislature

19  to ensure adequate regulation of insurers and reinsurers and

20  adequate protection for those to whom they owe obligations.

21  In furtherance of that state interest, the Legislature

22  requires that upon the insolvency of a non-United States

23  insurer or reinsurer which provides security to fund its

24  United States obligations in accordance with this section,

25  such security shall be maintained in the United States and

26  claims shall be filed with and valued by the State Insurance

27  Commissioner with regulatory oversight, and the assets shall

28  be distributed in accordance with the insurance laws of the

29  state in which the trust is domiciled that are applicable to

30  the liquidation of domestic United States insurance companies.

31  The Legislature declares that the matters contained in this

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  1  section are fundamental to the business of insurance in

  2  accordance with 15 U.S.C. ss. 1011-1012.

  3         (2)  Credit for reinsurance must be allowed a ceding

  4  insurer as either an asset or a deduction from liability on

  5  account of reinsurance ceded only when the reinsurer meets the

  6  requirements of paragraph (3)(a), paragraph (3)(b), or

  7  paragraph (3)(c). Credit must be allowed under paragraph

  8  (3)(a) or paragraph (3)(b) only for cessions of those kinds or

  9  lines of business that the assuming insurer is licensed,

10  authorized, or otherwise permitted to write or assume in its

11  state of domicile or, in the case of a United States branch of

12  an alien assuming insurer, in the state through which it is

13  entered and licensed or authorized to transact insurance or

14  reinsurance.

15         (3)(a)  Credit must be allowed when the reinsurance is

16  ceded to an assuming insurer that is authorized to transact

17  insurance or reinsurance in this state.

18         (b)1.  Credit must be allowed when the reinsurance is

19  ceded to an assuming insurer that is accredited as a reinsurer

20  in this state. An accredited reinsurer is one that:

21         a.  Files with the department evidence of its

22  submission to this state's jurisdiction;

23         b.  Submits to this state's authority to examine its

24  books and records;

25         c.  Is licensed or authorized to transact insurance or

26  reinsurance in at least one state or, in the case of a United

27  States branch of an alien assuming insurer, is entered

28  through, licensed, or authorized to transact insurance or

29  reinsurance in at least one state;

30         d.  Files annually with the department a copy of its

31  annual statement filed with the insurance department of its

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  1  state of domicile any quarterly statements if required by its

  2  state of domicile or such quarterly statements if specifically

  3  requested by the department, and a copy of its most recent

  4  audited financial statement; and

  5         (I)  Maintains a surplus as regards policyholders in an

  6  amount not less than $20 million and whose accreditation has

  7  not been denied by the department within 90 days after its

  8  submission; or

  9         (II)  Maintains a surplus as regards policyholders in

10  an amount not less than $20 million and whose accreditation

11  has been approved by the department.

12         2.  The department may deny or revoke an assuming

13  insurer's accreditation if the assuming insurer does not

14  submit the required documentation pursuant to subparagraph 1.,

15  if the assuming insurer fails to meet all of the standards

16  required of an accredited reinsurer, or if the assuming

17  insurer's accreditation would be hazardous to the

18  policyholders of this state. In determining whether to deny or

19  revoke accreditation, the department may consider the

20  qualifications of the assuming insurer with respect to all the

21  following subjects:

22         a.  Its financial stability;

23         b.  The lawfulness and quality of its investments;

24         c.  The competency, character, and integrity of its

25  management;

26         d.  The competency, character, and integrity of persons

27  who own or have a controlling interest in the assuming

28  insurer; and

29         e.  Whether claims under its contracts are promptly and

30  fairly adjusted and are promptly and fairly paid in accordance

31  with the law and the terms of the contracts.

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  1         3.  Credit must not be allowed a ceding insurer if the

  2  assuming insurer's accreditation has been revoked by the

  3  department after notice and the opportunity for a hearing.

  4         4.  The actual costs and expenses incurred by the

  5  department to review a reinsurer's request for accreditation

  6  and subsequent reviews must be charged to and collected from

  7  the requesting reinsurer. If the reinsurer fails to pay the

  8  actual costs and expenses promptly when due, the department

  9  may refuse to accredit the reinsurer or may revoke the

10  reinsurer's accreditation.

11         (c)1.  Credit must be allowed when the reinsurance is

12  ceded to an assuming insurer that maintains a trust fund in a

13  qualified United States financial institution, as defined in

14  paragraph (5)(b), for the payment of the valid claims of its

15  United States ceding insurers and their assigns and successors

16  in interest. To enable the department to determine the

17  sufficiency of the trust fund, the assuming insurer shall

18  report annually to the department information substantially

19  the same as that required to be reported on the NAIC Annual

20  Statement form by authorized insurers. The assuming insurer

21  shall submit to examination of its books and records by the

22  department and bear the expense of examination.

23         2.a.  Credit for reinsurance must not be granted under

24  this subsection unless the form of the trust and any

25  amendments to the trust have been approved by:

26         (I)  The commissioner of the state in which the trust

27  is domiciled; or

28         (II)  The commissioner of another state who, pursuant

29  to the terms of the trust instrument, has accepted principal

30  regulatory oversight of the trust.

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  1         b.  The form of the trust and any trust amendments must

  2  be filed with the commissioner of every state in which the

  3  ceding insurer beneficiaries of the trust are domiciled. The

  4  trust instrument must provide that contested claims are valid

  5  and enforceable upon the final order of any court of competent

  6  jurisdiction in the United States. The trust must vest legal

  7  title to its assets in its trustees for the benefit of the

  8  assuming insurer's United States ceding insurers and their

  9  assigns and successors in interest. The trust and the assuming

10  insurer are subject to examination as determined by the

11  commissioner.

12         c.  The trust remains in effect for as long as the

13  assuming insurer has outstanding obligations due under the

14  reinsurance agreements subject to the trust. No later than

15  February 28 of each year, the trustee of the trust shall

16  report to the commissioner in writing the balance of the trust

17  and list the trust's investments at the preceding year end,

18  and shall certify that the trust will not expire prior to the

19  following December 31.

20         3.  The following requirements apply to the following

21  categories of assuming insurer:

22         a.  The trust fund for a single assuming insurer

23  consists of funds in trust in an amount not less than the

24  assuming insurer's liabilities attributable to reinsurance

25  ceded by United States ceding insurers, and, in addition, the

26  assuming insurer shall maintain a trusteed surplus of not less

27  than $20 million. The funds in the trust and trusteed surplus

28  consist of assets of a quality substantially similar to that

29  required in part II of chapter 625.

30         b.(I)  In the case of a group including incorporated

31  and individual unincorporated underwriters:

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  1         (A)  For reinsurance ceded under reinsurance agreements

  2  with an inception, amendment, or renewal date on or after

  3  August 1, 1995, the trust consists of a trusteed account in an

  4  amount not less than the group's several liabilities

  5  attributable to business ceded by United States domiciled

  6  ceding insurers to any member of the group;

  7         (B)  For reinsurance ceded under reinsurance agreements

  8  with an inception date on or before July 31, 1995, and not

  9  amended or renewed after that date, notwithstanding the other

10  provisions of this section, the trust consists of a trusteed

11  account in an amount not less than the group's several

12  insurance and reinsurance liabilities attributable to business

13  written in the United States; and

14         (C)  In addition to these trusts, the group shall

15  maintain in trust a trusteed surplus of which $100 million

16  must be held jointly for the benefit of the United States

17  domiciled ceding insurers of any member of the group for all

18  years of account.

19         (II)  The incorporated members of the group must not be

20  engaged in any business other than underwriting of a member of

21  the group, and are subject to the same level of regulation and

22  solvency control by the group's domiciliary regulator as the

23  unincorporated members.

24         (III)  Within 90 days after its financial statements

25  are due to be filed with the group's domiciliary regulator,

26  the group shall provide to the commissioner an annual

27  certification by the group's domiciliary regulator of the

28  solvency of each underwriter member or, if a certification is

29  unavailable, financial statements, prepared by independent

30  public accountants, of each underwriter member of the group.

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  1         (d)  Credit must be allowed when the reinsurance is

  2  ceded to an assuming insurer not meeting the requirements of

  3  paragraph (a), paragraph (b), or paragraph (c), but only as to

  4  the insurance of risks located in jurisdictions in which the

  5  reinsurance is required to be purchased by a particular entity

  6  by applicable law or regulation of that jurisdiction.

  7         (e)  If the assuming insurer is not authorized or

  8  accredited to transact insurance or reinsurance in this state

  9  pursuant to paragraph (a) or paragraph (b), the credit

10  permitted by paragraph (c) must not be allowed unless the

11  assuming insurer agrees in the reinsurance agreements:

12         1.a.  That in the event of the failure of the assuming

13  insurer to perform its obligations under the terms of the

14  reinsurance agreement, the assuming insurer, at the request of

15  the ceding insurer, shall submit to the jurisdiction of any

16  court of competent jurisdiction in any state of the United

17  States, will comply with all requirements necessary to give

18  the court jurisdiction, and will abide by the final decision

19  of the court or of any appellate court in the event of an

20  appeal; and

21         b.  To designate the commissioner, pursuant to s.

22  48.151, or a designated attorney as its true and lawful

23  attorney upon whom may be served any lawful process in any

24  action, suit, or proceeding instituted by or on behalf of the

25  ceding company.

26         2.  This paragraph is not intended to conflict with or

27  override the obligation of the parties to a reinsurance

28  agreement to arbitrate their disputes, if this obligation is

29  created in the agreement.

30         (f)  If the assuming insurer does not meet the

31  requirements of paragraph (a) or paragraph (b), the credit

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  1  permitted by paragraph (c) is not allowed unless the assuming

  2  insurer agrees in the trust agreements, in substance, to the

  3  following conditions:

  4         1.  Notwithstanding any other provisions in the trust

  5  instrument, if the trust fund is inadequate because it

  6  contains an amount less than the amount required by paragraph

  7  (c), or if the grantor of the trust has been declared

  8  insolvent or placed into receivership, rehabilitation,

  9  liquidation, or similar proceedings under the laws of its

10  state or country of domicile, the trustee shall comply with an

11  order of the commissioner with regulatory oversight over the

12  trust or with an order of a United States court of competent

13  jurisdiction directing the trustee to transfer to the

14  commissioner with regulatory oversight all of the assets of

15  the trust fund.

16         2.  The assets must be distributed by and claims must

17  be filed with and valued by the commissioner with regulatory

18  oversight in accordance with the laws of the state in which

19  the trust is domiciled which are applicable to the liquidation

20  of domestic insurance companies.

21         3.  If the commissioner with regulatory oversight

22  determines that the assets of the trust fund or any part

23  thereof are not necessary to satisfy the claims of the United

24  States ceding insurers of the grantor of the trust, the assets

25  or part thereof must be returned by the commissioner with

26  regulatory oversight to the trustee for distribution in

27  accordance with the trust agreement.

28         4.  The grantor shall waive any right otherwise

29  available to it under United States law that is inconsistent

30  with this provision.

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  1         (4)  An asset allowed or a deduction from liability

  2  taken for the reinsurance ceded by an insurer to an assuming

  3  insurer not meeting the requirements of subsections (2) and

  4  (3) is allowed in an amount not exceeding the liabilities

  5  carried by the ceding insurer. The deduction must be in the

  6  amount of funds held by or on behalf of the ceding insurer,

  7  including funds held in trust for the ceding insurer, under a

  8  reinsurance contract with the assuming insurer as security for

  9  the payment of obligations thereunder, if the security is held

10  in the United States subject to withdrawal solely by, and

11  under the exclusive control of, the ceding insurer, or, in the

12  case of a trust, held in a qualified United States financial

13  institution, as defined in paragraph (5)(b). This security may

14  be in the form of:

15         (a)  Cash in United States dollars;

16         (b)  Securities listed by the Securities Valuation

17  Office of the National Association of Insurance Commissioners

18  and qualifying as admitted assets pursuant to part II of

19  chapter 625;

20         (c)  Clean, irrevocable, unconditional letters of

21  credit, issued or confirmed by a qualified United States

22  financial institution, as defined in paragraph (5)(a),

23  effective no later than December 31 of the year for which the

24  filing is made, and in the possession of, or in trust for, the

25  ceding company on or before the filing date of its annual

26  statement; or

27         (d)  Any other form of security acceptable to the

28  department.

29         (5)(a)  For purposes of paragraph (4)(c) regarding

30  letters of credit, a "qualified United States financial

31  institution" means an institution that:

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  1         1.  Is organized or, in the case of a United States

  2  office of a foreign banking organization, is licensed under

  3  the laws of the United States or any state thereof;

  4         2.  Is regulated, supervised, and examined by United

  5  States or state authorities having regulatory authority over

  6  banks and trust companies; and

  7         3.  Has been determined by either the department or the

  8  Securities Valuation Office of the National Association of

  9  Insurance Commissioners to meet such standards of financial

10  condition and standing as are considered necessary and

11  appropriate to regulate the quality of financial institutions

12  whose letters of credit will be acceptable to the department.

13         (b)  For purposes of those provisions of this law which

14  specify institutions that are eligible to act as a fiduciary

15  of a trust, a "qualified United States financial institution"

16  means an institution that is a member of the Federal Reserve

17  System or that has been determined by the department to meet

18  the following criteria:

19         1.  Is organized or, in the case of a United States

20  branch or agency office of a foreign banking organization, is

21  licensed under the laws of the United States or any state

22  thereof and has been granted authority to operate with

23  fiduciary powers; and

24         2.  Is regulated, supervised, and examined by federal

25  or state authorities having regulatory authority over banks

26  and trust companies.

27         (6)  For the purposes of this section only, the term

28  "ceding insurer" includes any health maintenance organization

29  operating under a certificate of authority issued under part I

30  of chapter 641.

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  1         (7)  After notice and an opportunity for a hearing, the

  2  department may disallow any credit that it finds would be

  3  contrary to the proper interests of the policyholders or

  4  stockholders of a ceding domestic insurer.

  5         (8)  Credit must be allowed to any ceding insurer for

  6  reinsurance otherwise complying with this section only when

  7  the reinsurance is payable by the assuming insurer on the

  8  basis of the liability of the ceding insurer under the

  9  contract or contracts reinsured without diminution because of

10  the insolvency of the ceding insurer. Such credit must be

11  allowed to the ceding insurer for reinsurance otherwise

12  complying with this section only when the reinsurance

13  agreement provides that payments by the assuming insurer will

14  be made directly to the ceding insurer or its receiver, except

15  when:

16         (a)  The reinsurance contract specifically provides

17  payment to the named insured, assignee, or named beneficiary

18  of the policy issued by the ceding insurer in the event of the

19  insolvency of the ceding insurer; or

20         (b)  The assuming insurer, with the consent of the

21  named insured, has assumed the policy obligations of the

22  ceding insurer as direct obligations of the assuming insurer

23  in substitution for the obligations of the ceding insurer to

24  the named insured.

25         (9)  No person, other than the ceding insurer, has any

26  rights against the reinsurer which are not specifically set

27  forth in the contract of reinsurance or in a specific written,

28  signed agreement between the reinsurer and the person.

29         (10)  An authorized insurer may not knowingly accept as

30  assuming reinsurer any risk covering subject of insurance

31  which is resident, located, or to be performed in this state

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  1  and which is written directly by any insurer not then

  2  authorized to transact such insurance in this state, other

  3  than as to surplus lines insurance lawfully written under part

  4  VIII of chapter 626.

  5         (11)(a)  Any domestic or commercially domiciled insurer

  6  ceding directly written risks of loss under this section

  7  shall, within 30 days after receipt of a cover note or similar

  8  confirmation of coverage, or, without exception, no later than

  9  6 months after the effective date of the reinsurance treaty,

10  file with the department one copy of a summary statement

11  containing the following information about each treaty:

12         1.  The contract period;

13         2.  The nature of the reinsured's business;

14         3.  An indication as to whether the treaty is

15  proportional, nonproportional, coinsurance, modified

16  coinsurance, or indemnity, as applicable;

17         4.  The ceding company's loss retention per risk;

18         5.  The reinsured limits;

19         6.  Any special contract restrictions;

20         7.  A schedule of reinsurers assuming the risks of

21  loss;

22         8.  An indication as to whether payments to the

23  assuming insurer are based on written premiums or earned

24  premiums;

25         9.  Identification of any intermediary or broker used

26  in obtaining the reinsurance and the commission paid to such

27  intermediary or broker if known; and

28         10.  Ceding commissions and allowances.

29         (b)  The summary statement must be signed and attested

30  to by either the chief executive officer or the chief

31  financial officer of the reporting insurer. In addition to the

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  1  summary statement, the Insurance Commissioner may require the

  2  filing of any supporting information relating to the ceding of

  3  such risks as she or he deems necessary. If the summary

  4  statement prepared by the ceding insurer discloses that the

  5  net effect of a reinsurance treaty or treaties (or series of

  6  treaties with one or more affiliated reinsurers entered into

  7  for the purpose of avoiding the following threshold amount) at

  8  any time results in an increase of more than 25 percent to the

  9  insurer's surplus as to policyholders, then the insurer shall

10  certify in writing to the department that the relevant

11  reinsurance treaty or treaties comply with the accounting

12  requirements contained in any rule adopted by the department

13  under subsection (14). If such certificate is filed after the

14  summary statement of such reinsurance treaty or treaties, the

15  insurer shall refile the summary statement with the

16  certificate. In any event, the certificate must state that a

17  copy of the certificate was sent to the reinsurer under the

18  reinsurance treaty.

19         (c)  This subsection applies to cessions of directly

20  written risk or loss. This subsection does not apply to

21  contracts of facultative reinsurance or to any ceding insurer

22  with surplus as to policyholders that exceeds $100 million as

23  of the immediately preceding December 31. Additionally, any

24  ceding insurer otherwise subject to this section with less

25  than $500,000 in direct premiums written in this state during

26  the preceding calendar year or with less than 1,000

27  policyholders at the end of the preceding calendar year is

28  exempt from the requirements of this subsection. However, any

29  ceding insurer otherwise subject to this section with more

30  than $250,000 in direct premiums written in this state during

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  1  the preceding calendar quarter is not exempt from the

  2  requirements of this subsection.

  3         (d)  An authorized insurer not otherwise exempt from

  4  the provisions of this subsection shall provide the

  5  information required by this subsection with underlying and

  6  supporting documentation upon written request of the

  7  department.

  8         (e)  The department may, upon a showing of good cause,

  9  waive the requirements of this subsection.

10         (12)  If the department finds that a reinsurance

11  agreement creates a substantial risk of insolvency to either

12  insurer entering into the reinsurance agreement, the

13  department may by order require a cancellation of the

14  reinsurance agreement.

15         (13)  No credit shall be allowed for reinsurance with

16  regard to which the reinsurance agreement does not create a

17  meaningful transfer of risk of loss to the reinsurer.

18         (14)  The department may adopt rules implementing the

19  provisions of this section. Rules are authorized to protect

20  the interests of insureds, claimants, ceding insurers,

21  assuming insurers, and the public. These rules shall be in

22  substantial compliance with:

23         (a)  The National Association of Insurance

24  Commissioners model regulations relating to credit for

25  reinsurance;

26         (b)  Version 1999 of the National Association of

27  Insurance Commissioners Accounting Practices and Procedures

28  Manual; and

29         (c)  The National Association of Insurance

30  Commissioners model regulation for Credit for Reinsurance and

31  Life and Health Reinsurance Agreements.

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  1

  2  The department may further adopt rules to provide for

  3  transition from existing requirements for the approval of

  4  reinsurers to the accreditation of reinsurers pursuant to this

  5  section.

  6         (15)  Any reinsurer approved pursuant to s.

  7  624.610(3)(a)2., as such provision existed prior to July 1,

  8  2000, which fails to obtain accreditation pursuant to this

  9  section prior to December 30, 2003, shall have its approval

10  terminated by operation of law on that date.

11         (16)  This act shall apply to all cessions on or after

12  January 1, 2001, under reinsurance agreements that have an

13  inception, anniversary, or renewal date on or after January 1,

14  2001.

15         Section 2.  This act shall take effect July 1, 2000.

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