Florida Senate - 2020                                    SB 1376
       By Senator Broxson
       1-00904A-20                                           20201376__
    1                        A bill to be entitled                      
    2         An act relating to credit for reinsurance; amending s.
    3         624.610, F.S.; adding conditions under which a ceding
    4         insurer must be allowed credit for reinsurance;
    5         defining the terms “reciprocal jurisdiction” and
    6         “covered agreement”; specifying requirements for
    7         assuming insurers and reinsurance agreements;
    8         requiring the Financial Services Commission to adopt
    9         certain rules; authorizing a ceding insurer or its
   10         representative that is subject to rehabilitation,
   11         liquidation, or conservation to seek a certain court
   12         order; specifying a limitation on credit taken by a
   13         ceding insurer; authorizing the Office of Insurance
   14         Regulation to revoke or suspend an assuming insurer’s
   15         eligibility under certain conditions; providing
   16         construction; deleting an obsolete provision;
   17         conforming provisions to changes made by the act;
   18         making technical changes; providing an effective date.
   20  Be It Enacted by the Legislature of the State of Florida:
   22         Section 1. Present subsections (4) through (14) of section
   23  624.610, Florida Statutes, are redesignated as subsections (5)
   24  through (15), respectively, a new subsection (4) is added to
   25  that section, and subsection (2), paragraphs (c) and (e) of
   26  subsection (3), present subsections (4) and (15), paragraph (a)
   27  of present subsection (5), and paragraph (b) of present
   28  subsection (11) are amended, to read:
   29         624.610 Reinsurance.—
   30         (2) Credit for reinsurance must be allowed a ceding insurer
   31  as either an asset or a deduction from liability on account of
   32  reinsurance ceded only when the reinsurer meets the requirements
   33  of paragraph (3)(a), paragraph (3)(b), or paragraph (3)(c), or
   34  subsection (4). Credit must be allowed under paragraph (3)(a) or
   35  paragraph (3)(b) only for cessions of those kinds or lines of
   36  business that the assuming insurer is licensed, authorized, or
   37  otherwise permitted to write or assume in its state of domicile
   38  or, in the case of a United States branch of an alien assuming
   39  insurer, in the state through which it is entered and licensed
   40  or authorized to transact insurance or reinsurance.
   41         (3)
   42         (c)1. Credit must be allowed when the reinsurance is ceded
   43  to an assuming insurer that maintains a trust fund in a
   44  qualified United States financial institution, as defined in
   45  paragraph (6)(b) (5)(b), for the payment of the valid claims of
   46  its United States ceding insurers and their assigns and
   47  successors in interest. To enable the office to determine the
   48  sufficiency of the trust fund, the assuming insurer shall report
   49  annually to the office information substantially the same as
   50  that required to be reported on the NAIC Annual Statement form
   51  by authorized insurers. The assuming insurer shall submit to
   52  examination of its books and records by the office and bear the
   53  expense of examination.
   54         2.a. Credit for reinsurance must not be granted under this
   55  subsection unless the form of the trust and any amendments to
   56  the trust have been approved by:
   57         (I) The insurance regulator of the state in which the trust
   58  is domiciled; or
   59         (II) The insurance regulator of another state who, pursuant
   60  to the terms of the trust instrument, has accepted principal
   61  regulatory oversight of the trust.
   62         b. The form of the trust and any trust amendments must be
   63  filed with the insurance regulator of every state in which the
   64  ceding insurer beneficiaries of the trust are domiciled. The
   65  trust instrument must provide that contested claims are valid
   66  and enforceable upon the final order of any court of competent
   67  jurisdiction in the United States. The trust must vest legal
   68  title to its assets in its trustees for the benefit of the
   69  assuming insurer’s United States ceding insurers and their
   70  assigns and successors in interest. The trust and the assuming
   71  insurer are subject to examination as determined by the
   72  insurance regulator.
   73         c. The trust remains in effect for as long as the assuming
   74  insurer has outstanding obligations due under the reinsurance
   75  agreements subject to the trust. No later than February 28 of
   76  each year, the trustee of the trust shall report to the
   77  insurance regulator in writing the balance of the trust and list
   78  the trust’s investments at the preceding year end, and shall
   79  certify that the trust will not expire prior to the following
   80  December 31.
   81         3. The following requirements apply to the following
   82  categories of assuming insurer:
   83         a. The trust fund for a single assuming insurer consists of
   84  funds in trust in an amount not less than the assuming insurer’s
   85  liabilities attributable to reinsurance ceded by United States
   86  ceding insurers, and, in addition, the assuming insurer shall
   87  maintain a trusteed surplus of not less than $20 million. Not
   88  less than 50 percent of the funds in the trust covering the
   89  assuming insurer’s liabilities attributable to reinsurance ceded
   90  by United States ceding insurers and trusteed surplus shall
   91  consist of assets of a quality substantially similar to that
   92  required in part II of chapter 625. Clean, irrevocable,
   93  unconditional, and evergreen letters of credit, issued or
   94  confirmed by a qualified United States financial institution, as
   95  defined in paragraph (6)(a) (5)(a), effective no later than
   96  December 31 of the year for which the filing is made and in the
   97  possession of the trust on or before the filing date of its
   98  annual statement, may be used to fund the remainder of the trust
   99  and trusteed surplus.
  100         b.(I) In the case of a group including incorporated and
  101  individual unincorporated underwriters:
  102         (A) For reinsurance ceded under reinsurance agreements with
  103  an inception, amendment, or renewal date on or after August 1,
  104  1995, the trust consists of a trusteed account in an amount not
  105  less than the group’s several liabilities attributable to
  106  business ceded by United States domiciled ceding insurers to any
  107  member of the group;
  108         (B) For reinsurance ceded under reinsurance agreements with
  109  an inception date on or before July 31, 1995, and not amended or
  110  renewed after that date, notwithstanding the other provisions of
  111  this section, the trust consists of a trusteed account in an
  112  amount not less than the group’s several insurance and
  113  reinsurance liabilities attributable to business written in the
  114  United States; and
  115         (C) In addition to these trusts, the group shall maintain
  116  in trust a trusteed surplus of which $100 million must be held
  117  jointly for the benefit of the United States domiciled ceding
  118  insurers of any member of the group for all years of account.
  119         (II) The incorporated members of the group must not be
  120  engaged in any business other than underwriting of a member of
  121  the group, and are subject to the same level of regulation and
  122  solvency control by the group’s domiciliary regulator as the
  123  unincorporated members.
  124         (III) Within 90 days after its financial statements are due
  125  to be filed with the group’s domiciliary regulator, the group
  126  shall provide to the insurance regulator an annual certification
  127  by the group’s domiciliary regulator of the solvency of each
  128  underwriter member or, if a certification is unavailable,
  129  financial statements, prepared by independent public
  130  accountants, of each underwriter member of the group.
  131         (e) If the reinsurance is ceded to an assuming insurer not
  132  meeting the requirements of paragraph (a), paragraph (b),
  133  paragraph (c), or paragraph (d), the office commissioner may
  134  allow credit, but only if the assuming insurer holds surplus in
  135  excess of $250 million and has a secure financial strength
  136  rating from at least two statistical rating organizations deemed
  137  acceptable by the office commissioner as having experience and
  138  expertise in rating insurers doing business in Florida,
  139  including, but not limited to, Standard & Poor’s, Moody’s
  140  Investors Service, Fitch Ratings, A.M. Best Company, and
  141  Demotech. In determining whether credit should be allowed, the
  142  office commissioner shall consider the following:
  143         1. The domiciliary regulatory jurisdiction of the assuming
  144  insurer.
  145         2. The structure and authority of the domiciliary regulator
  146  with regard to solvency regulation requirements and the
  147  financial surveillance of the reinsurer.
  148         3. The substance of financial and operating standards for
  149  reinsurers in the domiciliary jurisdiction.
  150         4. The form and substance of financial reports required to
  151  be filed by the reinsurers in the domiciliary jurisdiction or
  152  other public financial statements filed in accordance with
  153  generally accepted accounting principles.
  154         5. The domiciliary regulator’s willingness to cooperate
  155  with United States regulators in general and the office in
  156  particular.
  157         6. The history of performance by reinsurers in the
  158  domiciliary jurisdiction.
  159         7. Any documented evidence of substantial problems with the
  160  enforcement of valid United States judgments in the domiciliary
  161  jurisdiction.
  162         8. Any other matters deemed relevant by the office
  163  commissioner. The office commissioner shall give appropriate
  164  consideration to insurer group ratings that may have been
  165  issued. The office commissioner may, in lieu of granting full
  166  credit under this subsection, reduce the amount required to be
  167  held in trust under paragraph (c).
  168         (4) Credit must be allowed when the reinsurance is ceded to
  169  an assuming insurer meeting the requirements of this subsection.
  170         (a)The assuming insurer must be licensed in, and have its
  171  head office in or be domiciled in, as applicable, a reciprocal
  172  jurisdiction. As used in this subsection, the term “reciprocal
  173  jurisdiction” means a jurisdiction that is any of the following:
  174         1.A non-United States jurisdiction that is subject to an
  175  in-force covered agreement with the United States, each within
  176  its legal authority; or, in the case of a covered agreement
  177  between the United States and the European Union, a jurisdiction
  178  that is a member state of the European Union. As used in this
  179  paragraph, the term “covered agreement” means an agreement
  180  entered into pursuant to the Dodd-Frank Wall Street Reform and
  181  Consumer Protection Act, 31 U.S.C. ss. 313 and 314, which is
  182  currently in effect or in a period of provisional application
  183  and which addresses the elimination, under specified conditions,
  184  of collateral requirements as a condition for entering into any
  185  reinsurance agreement with a ceding insurer domiciled in this
  186  state or for allowing the ceding insurer to recognize credit for
  187  reinsurance.
  188         2.A United States jurisdiction that meets the requirements
  189  for accreditation under the Financial Regulation Standards and
  190  Accreditation Program of the National Association of Insurance
  191  Commissioners.
  192         3.A qualified jurisdiction, as determined by the office,
  193  which is not otherwise described in subparagraph 1. or
  194  subparagraph 2. and which meets certain additional requirements,
  195  consistent with the terms and conditions of in-force covered
  196  agreements, as specified by commission rule.
  197         (b)The assuming insurer must have and maintain on an
  198  ongoing basis minimum capital and surplus, or its equivalent,
  199  calculated according to the methodology of its domiciliary
  200  jurisdiction, in an amount specified by commission rule. If the
  201  assuming insurer is an association, including incorporated and
  202  individual unincorporated underwriters, it must have and
  203  maintain on an ongoing basis minimum capital and surplus
  204  equivalents (net of liabilities) calculated according to the
  205  methodology applicable in its domiciliary jurisdiction, and a
  206  central fund containing a balance in amounts specified by
  207  commission rule.
  208         (c)The assuming insurer must have and maintain on an
  209  ongoing basis a minimum solvency or capital ratio, as
  210  applicable, as specified by commission rule. If the assuming
  211  insurer is an association, including incorporated and individual
  212  unincorporated underwriters, it must have and maintain on an
  213  ongoing basis a minimum solvency or capital ratio in the
  214  reciprocal jurisdiction where the assuming insurer is licensed
  215  and has its head office or where it is domiciled, as applicable.
  216         (d)The assuming insurer must agree and provide adequate
  217  assurance to the office, in a form specified by the commission,
  218  of all of the following:
  219         1.Prompt written notice and explanation to the office if
  220  the assuming insurer falls below the minimum requirements set
  221  forth in paragraph (b) or paragraph (c), or if any regulatory
  222  action is taken against it for serious noncompliance with
  223  applicable law.
  224         2.The assuming insurer’s written consent to the
  225  jurisdiction of the courts of this state and designation of the
  226  Chief Financial Officer, pursuant to s. 48.151, or of a
  227  designated attorney as its true and lawful attorney upon whom
  228  may be served any lawful process in any action, suit, or
  229  proceeding instituted by or on behalf of the ceding company.
  230  This subparagraph does not limit or alter the capacity of
  231  parties to a reinsurance agreement to agree to an alternative
  232  dispute resolution mechanism, except to the extent that such
  233  agreements are unenforceable under applicable insolvency or
  234  delinquency laws.
  235         3.The assuming insurer’s written consent to pay all final
  236  judgments, wherever enforcement is sought, obtained by a ceding
  237  insurer or its legal successor which have been declared
  238  enforceable in the jurisdiction where the judgment was obtained.
  239         4.Each reinsurance agreement must include a provision
  240  requiring the assuming insurer to provide security in an amount
  241  equal to 100 percent of the assuming insurer’s liabilities
  242  attributable to reinsurance ceded pursuant to that agreement, if
  243  the assuming insurer resists enforcement of a final judgment
  244  that is enforceable under the law of the jurisdiction in which
  245  it was obtained or of a properly enforceable arbitration award,
  246  whether obtained by the ceding insurer or by its legal successor
  247  on behalf of its resolution estate.
  248         5.The assuming insurer’s confirmation that it is not
  249  presently participating in any solvent scheme of arrangement
  250  which involves this state’s ceding insurers, and must agree to
  251  notify the ceding insurer and the office and to provide security
  252  in an amount equal to 100 percent of the assuming insurer’s
  253  liabilities to the ceding insurer if the assuming insurer enters
  254  into such a solvent scheme of arrangement. Such security must be
  255  consistent with subsection (3) and this subsection.
  256         (e)If requested by the office, the assuming insurer or its
  257  legal successor must provide on behalf of itself and any legal
  258  predecessors certain documentation to the office pursuant to
  259  criteria set forth by commission rule.
  260         (f)The assuming insurer must maintain a practice of prompt
  261  payment of claims under reinsurance agreements pursuant to
  262  criteria set forth by commission rule.
  263         (g)The assuming insurer’s supervisory authority must
  264  confirm to the office on an annual basis, on a form adopted by
  265  the commission, that, as of the preceding December 31 or at the
  266  annual date otherwise statutorily reported to the reciprocal
  267  jurisdiction, the assuming insurer complied with the
  268  requirements of paragraphs (b) and (c).
  269         (h)This subsection does not preclude an assuming insurer
  270  from providing the office with information on a voluntary basis.
  271         (i)If subject to a legal process of rehabilitation,
  272  liquidation, or conservation, as applicable, the ceding insurer
  273  or its representative may seek and, if determined appropriate by
  274  the court in which the proceedings are pending, obtain an order
  275  requiring that the assuming insurer post security for all
  276  outstanding ceded liabilities.
  277         (j)This subsection does not limit or alter the capacity of
  278  parties to a reinsurance agreement to agree on requirements for
  279  security or other terms in the reinsurance agreement, except as
  280  expressly prohibited by this section or other applicable law or
  281  rule of the commission.
  282         (k)1.Credit may be taken under this subsection only for
  283  reinsurance agreements entered into, amended, or renewed on or
  284  after the date on which the assuming insurer has satisfied the
  285  requirements to assume reinsurance under this subsection, and
  286  only with respect to losses incurred and reserves reported on or
  287  after the later of the date on which the assuming insurer has
  288  met all eligibility requirements pursuant to this subsection or
  289  the effective date of the new reinsurance agreement, amendment,
  290  or renewal.
  291         2.This paragraph does not alter or impair a ceding
  292  insurer’s right to take credit for reinsurance, to the extent
  293  that credit is not available under this subsection, if the
  294  reinsurance qualifies for credit under any other applicable
  295  provision of this section.
  296         3.This subsection does not authorize an assuming insurer
  297  to withdraw or reduce the security provided under any
  298  reinsurance agreement, except as permitted by the terms of the
  299  agreement.
  300         4.This subsection does not limit or alter the capacity of
  301  parties to any reinsurance agreement to renegotiate the
  302  agreement.
  303         (l)If the office determines that an assuming insurer no
  304  longer meets one or more of the requirements under this
  305  subsection, the office may revoke or suspend the eligibility of
  306  the assuming insurer for recognition under this subsection.
  307         1.During the suspension of an assuming insurer’s
  308  eligibility, a reinsurance agreement issued, amended, or renewed
  309  after the effective date of the suspension does not qualify for
  310  credit except to the extent that the assuming insurer’s
  311  obligations under the contract are secured in accordance with
  312  this subsection.
  313         2.If an assuming insurer’s eligibility is revoked, a
  314  credit for reinsurance may not be granted after the effective
  315  date of the revocation with respect to any reinsurance agreement
  316  entered into by the assuming insurer, including a reinsurance
  317  agreement entered into before the date of revocation, except to
  318  the extent that the assuming insurer’s obligations under the
  319  contract are secured in a form acceptable to the office and
  320  consistent with this subsection.
  321         (5)(4) An asset allowed or a deduction from liability taken
  322  for the reinsurance ceded by an insurer to an assuming insurer
  323  not meeting the requirements of subsections (2), and (3), and
  324  (4) is allowed in an amount not exceeding the liabilities
  325  carried by the ceding insurer. The deduction must be in the
  326  amount of funds held by or on behalf of the ceding insurer,
  327  including funds held in trust for the ceding insurer, under a
  328  reinsurance contract with the assuming insurer as security for
  329  the payment of obligations thereunder, if the security is held
  330  in the United States subject to withdrawal solely by, and under
  331  the exclusive control of, the ceding insurer, or, in the case of
  332  a trust, held in a qualified United States financial
  333  institution, as defined in paragraph (6)(b) (5)(b). This
  334  security may be in the form of:
  335         (a) Cash in United States dollars;
  336         (b) Securities listed by the Securities Valuation Office of
  337  the National Association of Insurance Commissioners and
  338  qualifying as admitted assets pursuant to part II of chapter
  339  625;
  340         (c) Clean, irrevocable, unconditional letters of credit,
  341  issued or confirmed by a qualified United States financial
  342  institution, as defined in paragraph (6)(a) (5)(a), effective no
  343  later than December 31 of the year for which the filing is made,
  344  and in the possession of, or in trust for, the ceding company on
  345  or before the filing date of its annual statement; or
  346         (d) Any other form of security acceptable to the office.
  347         (6)(a)(5)(a) For purposes of paragraph (5)(c) (4)(c)
  348  regarding letters of credit, a “qualified United States
  349  financial institution” means an institution that:
  350         1. Is organized or, in the case of a United States office
  351  of a foreign banking organization, is licensed under the laws of
  352  the United States or any state thereof;
  353         2. Is regulated, supervised, and examined by United States
  354  or state authorities having regulatory authority over banks and
  355  trust companies; and
  356         3. Has been determined by either the office or the
  357  Securities Valuation Office of the National Association of
  358  Insurance Commissioners to meet such standards of financial
  359  condition and standing as are considered necessary and
  360  appropriate to regulate the quality of financial institutions
  361  whose letters of credit will be acceptable to the office.
  362         (12)(11)
  363         (b) The summary statement must be signed and attested to by
  364  either the chief executive officer or the chief financial
  365  officer of the reporting insurer. In addition to the summary
  366  statement, the office may require the filing of any supporting
  367  information relating to the ceding of such risks as it deems
  368  necessary. If the summary statement prepared by the ceding
  369  insurer discloses that the net effect of a reinsurance treaty or
  370  treaties (or series of treaties with one or more affiliated
  371  reinsurers entered into for the purpose of avoiding the
  372  following threshold amount) at any time results in an increase
  373  of more than 25 percent to the insurer’s surplus as to
  374  policyholders, then the insurer shall certify in writing to the
  375  office that the relevant reinsurance treaty or treaties comply
  376  with the accounting requirements contained in any rule adopted
  377  by the commission under subsection (15) (14). If such
  378  certificate is filed after the summary statement of such
  379  reinsurance treaty or treaties, the insurer shall refile the
  380  summary statement with the certificate. In any event, the
  381  certificate must state that a copy of the certificate was sent
  382  to the reinsurer under the reinsurance treaty.
  383         (15) Any reinsurer approved pursuant to s. 624.610(3)(a)2.,
  384  as such provision existed prior to July 1, 2000, which fails to
  385  obtain accreditation pursuant to this section prior to December
  386  30, 2003, shall have its approval terminated by operation of law
  387  on that date.
  388         Section 2. This act shall take effect July 1, 2020.