Senate Bill sb0260

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    Florida Senate - 2007                                   SB 260

    By Senator Geller





    31-338-07

  1                      A bill to be entitled

  2         An act relating to reinsurance; amending s.

  3         624.610, F.S.; providing additional conditions

  4         under which the Commissioner of Insurance

  5         Regulation may allow credit to a ceding

  6         insurer; providing an effective date.

  7  

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

  9  

10         Section 1.  Subsection (3) of section 624.610, Florida

11  Statutes, is amended to read:

12         624.610  Reinsurance.--

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

14  ceded to an assuming insurer that is authorized to transact

15  insurance or reinsurance in this state.

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

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

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

19         a.  Files with the office evidence of its submission to

20  this state's jurisdiction;

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

22  books and records;

23         c.  Is licensed or authorized to transact insurance or

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

25  States branch of an alien assuming insurer, is entered

26  through, licensed, or authorized to transact insurance or

27  reinsurance in at least one state;

28         d.  Files annually with the office a copy of its annual

29  statement filed with the insurance department of its state of

30  domicile any quarterly statements if required by its state of

31  domicile or such quarterly statements if specifically

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    Florida Senate - 2007                                   SB 260
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 1  requested by the office, and a copy of its most recent audited

 2  financial statement; and

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

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

 5  not been denied by the office within 90 days after its

 6  submission; or

 7         (II)  Maintains a surplus as regards policyholders in

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

 9  has been approved by the office.

10         2.  The office may deny or revoke an assuming insurer's

11  accreditation if the assuming insurer does not submit the

12  required documentation pursuant to subparagraph 1., if the

13  assuming insurer fails to meet all of the standards required

14  of an accredited reinsurer, or if the assuming insurer's

15  accreditation would be hazardous to the policyholders of this

16  state. In determining whether to deny or revoke accreditation,

17  the office may consider the qualifications of the assuming

18  insurer with respect to all the following subjects:

19         a.  Its financial stability;

20         b.  The lawfulness and quality of its investments;

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

22  management;

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

24  who own or have a controlling interest in the assuming

25  insurer; and

26         e.  Whether claims under its contracts are promptly and

27  fairly adjusted and are promptly and fairly paid in accordance

28  with the law and the terms of the contracts.

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

30  assuming insurer's accreditation has been revoked by the

31  office after notice and the opportunity for a hearing.

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 1         4.  The actual costs and expenses incurred by the

 2  office to review a reinsurer's request for accreditation and

 3  subsequent reviews must be charged to and collected from the

 4  requesting reinsurer. If the reinsurer fails to pay the actual

 5  costs and expenses promptly when due, the office may refuse to

 6  accredit the reinsurer or may revoke the reinsurer's

 7  accreditation.

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

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

10  qualified United States financial institution, as defined in

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

12  United States ceding insurers and their assigns and successors

13  in interest. To enable the office to determine the sufficiency

14  of the trust fund, the assuming insurer shall report annually

15  to the office information substantially the same as that

16  required to be reported on the NAIC Annual Statement form by

17  authorized insurers. The assuming insurer shall submit to

18  examination of its books and records by the office and bear

19  the expense of examination.

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

21  this subsection unless the form of the trust and any

22  amendments to the trust have been approved by:

23         (I)  The insurance regulator of the state in which the

24  trust is domiciled; or

25         (II)  The insurance regulator of another state who,

26  pursuant to the terms of the trust instrument, has accepted

27  principal regulatory oversight of the trust.

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

29  be filed with the insurance regulator of every state in which

30  the ceding insurer beneficiaries of the trust are domiciled.

31  The trust instrument must provide that contested claims are

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 1  valid and enforceable upon the final order of any court of

 2  competent jurisdiction in the United States. The trust must

 3  vest legal title to its assets in its trustees for the benefit

 4  of the assuming insurer's United States ceding insurers and

 5  their assigns and successors in interest. The trust and the

 6  assuming insurer are subject to examination as determined by

 7  the insurance regulator.

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

 9  assuming insurer has outstanding obligations due under the

10  reinsurance agreements subject to the trust. No later than

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

12  report to the insurance regulator in writing the balance of

13  the trust and list the trust's investments at the preceding

14  year end, and shall certify that the trust will not expire

15  prior to the following December 31.

16         3.  The following requirements apply to the following

17  categories of assuming insurer:

18         a.  The trust fund for a single assuming insurer

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

20  assuming insurer's liabilities attributable to reinsurance

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

22  assuming insurer shall maintain a trusteed surplus of not less

23  than $20 million. Not less than 50 percent of the funds in the

24  trust covering the assuming insurer's liabilities attributable

25  to reinsurance ceded by United States ceding insurers and

26  trusteed surplus shall consist of assets of a quality

27  substantially similar to that required in part II of chapter

28  625. Clean, irrevocable, unconditional, and evergreen letters

29  of credit, issued or confirmed by a qualified United States

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

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

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 1  filing is made and in the possession of the trust on or before

 2  the filing date of its annual statement, may be used to fund

 3  the remainder of the trust and trusteed surplus.

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

 5  and individual unincorporated underwriters:

 6         (A)  For reinsurance ceded under reinsurance agreements

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

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

 9  amount not less than the group's several liabilities

10  attributable to business ceded by United States domiciled

11  ceding insurers to any member of the group;

12         (B)  For reinsurance ceded under reinsurance agreements

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

14  amended or renewed after that date, notwithstanding the other

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

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

17  insurance and reinsurance liabilities attributable to business

18  written in the United States; and

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

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

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

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

23  years of account.

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

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

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

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

28  unincorporated members.

29         (III)  Within 90 days after its financial statements

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

31  the group shall provide to the insurance regulator an annual

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 1  certification by the group's domiciliary regulator of the

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

 3  unavailable, financial statements, prepared by independent

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

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

 6  ceded to an assuming insurer not meeting the requirements of

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

 8  the insurance of risks located in jurisdictions in which the

 9  reinsurance is required to be purchased by a particular entity

10  by applicable law or regulation of that jurisdiction.

11         (e)  Credit may be allowed, at the sole discretion of

12  the Commissioner of Insurance Regulation, if the reinsurance

13  is ceded to an assuming insurer not meeting the requirements

14  of paragraph (a), paragraph (b), paragraph (c), or paragraph

15  (d), but only if the assuming insurer holds surplus in excess

16  of $100 million and has a secure financial strength rating

17  from at least two nationally recognized statistical rating

18  organizations deemed acceptable by the commissioner. The

19  commissioner may, in lieu of granting full credit under this

20  paragraph, reduce the amount required to be held in trust

21  under paragraph (c). In determining whether credit should be

22  allowed, the commissioner shall consider the following:

23         1.  The domiciliary regulatory jurisdiction of the

24  assuming insurer;

25         2.  The structure and authority of the domiciliary

26  regulator;

27         3.  The substance of financial and operating standards

28  for reinsurers in the domiciliary jurisdiction;

29         4.  The form and substance of financial reports

30  required to be filed by the reinsurers in the domiciliary

31  jurisdiction;

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    Florida Senate - 2007                                   SB 260
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 1         5.  The domiciliary regulator's willingness to

 2  cooperate with United States regulators in general and with

 3  the office in particular;

 4         6.  The history of performance by reinsurers in the

 5  domiciliary jurisdiction;

 6         7.  Any documented evidence of substantial problems

 7  concerning the enforcement of valid United States judgments in

 8  the domiciliary jurisdiction; and

 9         8.  Any other matter deemed relevant by the

10  commissioner.

11         (f)(e)  If the assuming insurer is not authorized or

12  accredited to transact insurance or reinsurance in this state

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

14  permitted by paragraph (c) or paragraph (d) must not be

15  allowed unless the assuming insurer agrees in the reinsurance

16  agreements:

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

18  insurer to perform its obligations under the terms of the

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

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

21  court of competent jurisdiction in any state of the United

22  States, will comply with all requirements necessary to give

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

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

25  appeal; and

26         b.  To designate the Chief Financial Officer, pursuant

27  to s. 48.151, or a designated attorney as its true and lawful

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

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

30  ceding company.

31  

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

 2  override the obligation of the parties to a reinsurance

 3  agreement to arbitrate their disputes, if this obligation is

 4  created in the agreement.

 5         (g)(f)  If the assuming insurer does not meet the

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

 7  permitted by paragraph (c) or paragraph (d) is not allowed

 8  unless the assuming insurer agrees in the trust agreements, in

 9  substance, to the following conditions:

10         1.  Notwithstanding any other provisions in the trust

11  instrument, if the trust fund is inadequate because it

12  contains an amount less than the amount required by paragraph

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

14  insolvent or placed into receivership, rehabilitation,

15  liquidation, or similar proceedings under the laws of its

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

17  order of the insurance regulator with regulatory oversight

18  over the trust or with an order of a United States court of

19  competent jurisdiction directing the trustee to transfer to

20  the insurance regulator with regulatory oversight all of the

21  assets of the trust fund.

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

23  be filed with and valued by the insurance regulator with

24  regulatory oversight in accordance with the laws of the state

25  in which the trust is domiciled which are applicable to the

26  liquidation of domestic insurance companies.

27         3.  If the insurance regulator with regulatory

28  oversight determines that the assets of the trust fund or any

29  part thereof are not necessary to satisfy the claims of the

30  United States ceding insurers of the grantor of the trust, the

31  assets or part thereof must be returned by the insurance

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 1  regulator with regulatory oversight to the trustee for

 2  distribution in accordance with the trust agreement.

 3         4.  The grantor shall waive any right otherwise

 4  available to it under United States law which is inconsistent

 5  with this provision.

 6         Section 2.  This act shall take effect October 1, 2007.

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 9                          SENATE SUMMARY

10    Provides that the Commissioner of Insurance Regulation
      may allow credit for reinsurance if it is ceded to an
11    assuming insurer having specified qualifications.

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