(a) Credit for reinsurance shall be allowed a domestic ceding insurer as either an asset or a deduction from liability on account of reinsurance ceded only when the reinsurer meets the requirements of:
(1) Subsection (b) of this section;
(2) Subsection (c) of this section;
(3) Subsections (d) and (h) of this section;
(4) Subsections (e), (h) and (i) of this section;
(5) Subsections (f) and (i) of this section;
(6) Subsection (g) of this section; or
(7) Any regulation adopted pursuant to subsection (b) of section 38a-88.
(b) Credit shall be allowed when the reinsurance is ceded to an assuming insurer that is licensed to transact insurance or reinsurance in this state.
(c) (1) Credit shall be allowed when the reinsurance is ceded to an assuming insurer that is accredited by the commissioner as a reinsurer in this state. To be eligible for accreditation, an insurer shall (A) file with the commissioner evidence of its submission to this state's jurisdiction, (B) submit to this state's authority to examine its books and records, (C) be licensed to transact insurance or reinsurance in at least one state, or in the case of a United States branch of an alien assuming insurer is entered through and licensed to transact insurance or reinsurance in at least one state, (D) file annually with the commissioner a copy of its annual statement filed with the insurance department of its state of domicile and a copy of its most recent audited financial statement, and (E) demonstrate to the satisfaction of the commissioner that it has adequate financial capacity to meet its reinsurance obligations and is otherwise qualified to assume reinsurance from a domestic insurer. An assuming insurer shall be deemed to meet the requirements of this subparagraph if it maintains a surplus with regard to policyholders of not less than twenty million dollars at the time of accreditation and its accreditation has not been denied by the commissioner within ninety days after the date the insurer submitted its application.
(2) Each accredited reinsurer doing business in this state shall, annually, on or before the first day of March, submit to the commissioner, by electronically filing with the National Association of Insurance Commissioners, a true and complete report, signed and sworn to by its president or a vice president, and secretary or an assistant secretary, of its financial condition on the thirty-first day of December next preceding, prepared in accordance with the National Association of Insurance Commissioners annual statement instructions handbook and following those accounting procedures and practices prescribed by the National Association of Insurance Commissioners accounting practices and procedures manual, subject to any deviations in form and detail as may be prescribed by the commissioner. An electronically filed report in accordance with section 38a-53a that is timely submitted to the National Association of Insurance Commissioners shall be deemed to have been submitted to the commissioner in accordance with this subdivision.
(d) Credit shall be allowed when the reinsurance is ceded to an assuming insurer that is domiciled and licensed in, or in the case of a United States branch of an alien assuming insurer is entered through, a state that employs standards regarding credit for reinsurance substantially similar to those applicable in this state and the assuming insurer or United States branch of an alien assuming insurer (1) maintains a surplus with regard to policyholders in an amount not less than twenty million dollars, and (2) submits to the authority of this state to examine its books and records. The requirement of subdivision (1) of this subsection shall not apply to reinsurance ceded and assumed pursuant to pooling arrangements among insurers in the same holding company system.
(e) (1) Credit shall be allowed when the reinsurance is ceded to an assuming insurer that maintains a trust that complies with the requirements of subdivisions (2) and (3) of this subsection in a qualified United States financial institution, as defined in section 38a-87, for the payment of the valid claims of its United States policyholders and ceding insurers, and their assigns and successors in interest. The assuming insurer shall (A) report annually to the commissioner information substantially the same as that required to be reported in the National Association of Insurance Commissioners' Annual Statement form by licensed insurers, to enable the commissioner to determine the sufficiency of the trust fund, and (B) submit to, and pay the expenses of, examination of its books and records by the commissioner.
(2) (A) No credit for reinsurance shall be allowed under subdivision (1) of this subsection unless:
(i) The form of the trust and any amendments to the trust have been approved by (I) the insurance regulatory official of the state of domicile of the trust, or (II) the insurance regulatory official of another state who has, pursuant to the terms of the trust instrument, accepted principal regulatory oversight of the trust;
(ii) The form of the trust and any amendments to the trust have been filed with the insurance regulatory officials of each state in which ceding insurer beneficiaries of the trust are domiciled; and
(iii) The trust instrument (I) provides that a contested claim shall be valid and enforceable upon the entry of a final order of a court of competent jurisdiction in the United States, and (II) vests legal title to its assets in its trustees for the benefit of the assuming insurer's domestic and foreign policyholders and ceding insurers, and their assigns and successors in interest.
(B) (i) The trust shall be subject to examination by the commissioner and shall remain in effect for as long as the assuming insurer has outstanding obligations due under the reinsurance agreements subject to the trust.
(ii) Not later than March first, annually, the trustee of the trust shall (I) report to the commissioner, in writing, the balance and a list of the investments of the trust at the end of the preceding calendar year, and (II) certify to the commissioner the date of termination of the trust, if so planned, or that the trust will not expire prior to the following December thirty-first.
(3) (A) (i) In the case of a single assuming insurer, the trust shall consist of a trusteed account with funds in an amount not less than the assuming insurer's liabilities attributable to reinsurance ceded by domestic and foreign ceding insurers and, unless otherwise provided in subparagraph (A)(ii) of this subdivision, the assuming insurer shall maintain a trusteed surplus of not less than twenty million dollars.
(ii) (I) The insurance regulatory official with principal oversight of the trust may authorize a reduction in the required trusteed surplus.
(II) For a trust over which the commissioner has principal regulatory oversight, at any time after the assuming insurer has permanently discontinued for at least three full years underwriting new business secured by the trust, the commissioner may authorize a reduction in the required trusteed surplus. Such reduction shall be made only after the commissioner finds, based on a risk assessment, that the reduced surplus level is adequate to protect domestic and foreign policyholders and ceding insurers and claimants in light of reasonably foreseeable adverse loss development. The risk assessment may involve an actuarial review, including an independent analysis of reserves and cash flows, and shall consider all material risk factors, including, when applicable, the lines of business involved, the stability of the incurred loss estimates and the effect of the surplus requirements on the assuming insurer's liquidity or solvency. The minimum required surplus shall not be reduced to an amount less than thirty per cent of the assuming insurer's liabilities attributable to reinsurance ceded by domestic and foreign ceding insurers covered by the trust.
(B) In the case of an assuming insurer that is a group including incorporated and individual unincorporated underwriters:
(i) (I) For reinsurance ceded under a reinsurance agreement with an inception date prior to January 1, 1993, and not amended or renewed after said date, the trust shall consist of a trusteed account with funds in an amount not less than such underwriters' several insurance and reinsurance liabilities attributable to business written in the United States; or
(II) For reinsurance ceded under a reinsurance agreement with an inception date on or after January 1, 1993, the trust shall consist of a trusteed account with funds in an amount not less than such underwriters' several liabilities attributable to business ceded by domestic and foreign ceding insurers to any underwriter who is a member of the group; and
(ii) In addition to a trust specified in subparagraph (B)(i)(I) or (B)(i)(II) of this subdivision, the group shall maintain, for all years of account, a trusteed surplus of which one hundred million dollars shall be held jointly for the benefit of domestic and foreign ceding insurers of any member of the group; and
(iii) The incorporated members of the group shall not be engaged in any business other than underwriting as a member of the group and shall be subject to the same level of solvency regulation and solvency control by the group's domiciliary insurance regulatory official as are the unincorporated members; and
(iv) Not later than ninety days after its financial statements are due to be filed with the group's domiciliary insurance regulatory official, the group shall provide to the commissioner an annual certification by the group's domiciliary insurance regulatory official of the solvency of each underwriter who is a member of the group or, if such certification is not provided by the group's domiciliary insurance regulatory official, financial statements prepared by independent public accountants of each such underwriter.
(C) In the case of a group of incorporated underwriters under common administration:
(i) The group shall be accredited and have continuously transacted an insurance business outside the United States for at least three years immediately prior to applying for accreditation;
(ii) The trust shall consist of a trusteed account with funds in an amount not less than such underwriters' several liabilities attributable to business ceded by domestic and foreign ceding insurers pursuant to a reinsurance contract issued in the name of the group to any underwriter who is a member of the group;
(iii) In addition to such trust, the group shall maintain (I) an aggregate policyholders' surplus of not less than ten billion dollars, and (II) a joint trusteed surplus of which one hundred million dollars shall be held jointly for the benefit of domestic and foreign ceding insurers of any member of the group as additional security for these liabilities; and
(iv) Not later than ninety days after its financial statements are due to be filed with the group's domiciliary insurance regulatory official, the group shall make available to the commissioner an annual certification by the group's domiciliary insurance regulatory official of the solvency of each underwriter who is a member of the group and financial statements prepared by independent public accountants of each such underwriter.
(f) (1) Credit shall be allowed when the reinsurance is ceded to an assuming insurer that is certified in accordance with section 38a-85a by the commissioner as a reinsurer in this state and such certified reinsurer maintains security in a form and amounts set forth in subdivision (3) of subsection (e) of this section or, for a multibeneficiary trust set forth in subdivision (2) of subsection (e) of section 38a-85a, in accordance with the provisions of subdivision (2) of subsection (e) of section 38a-85a.
(2) If the security is not sufficient with respect to obligations incurred by a certified reinsurer, the commissioner shall reduce the credit allowed by an amount proportionate to the deficiency and may impose further reductions in the credit allowed if the commissioner finds there is a material risk that such obligations will not be paid in full when due.
(g) Credit shall be allowed when the reinsurance is ceded to an assuming insurer not meeting the requirements of subsection (b), (c), (d), (e) or (f) of this section but only with respect to the insurance of risks located in jurisdictions where such reinsurance is required by applicable law or regulation of that jurisdiction.
(h) If the assuming insurer is not licensed, accredited or certified to transact insurance or reinsurance in this state, the credit permitted by subsection (d) or (e) of this section shall not be allowed unless the assuming insurer agrees (1) that in the event of the failure of the assuming insurer to perform its obligations under the terms of the reinsurance agreement, the assuming insurer, at the request of the ceding insurer, shall (A) submit to the jurisdiction of any court of competent jurisdiction in any state of the United States, (B) comply with all requirements necessary to give such court jurisdiction, and (C) abide by the final decision of such court or any appellate court in the event of an appeal, and (2) to designate the commissioner or a designated attorney as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the ceding company. This provision is not intended to conflict with or override the obligation of the parties to a reinsurance agreement to arbitrate their disputes, if such an obligation is created in the agreement.
(i) If the assuming insurer does not meet the requirements of subsection (b), (c) or (d) of this section, the credit permitted by subsection (e) or (f) of this section shall not be allowed unless the assuming insurer agrees to the following conditions in the trust instrument:
(1) Notwithstanding any provision of the trust instrument, if the trust contains an amount less than the amount required under subdivision (3) of subsection (e) of this section or if the grantor of the trust has been declared insolvent or placed in receivership, rehabilitation, liquidation or a similar proceeding under the laws of its state or country of domicile, the trustee shall comply with an order of the insurance regulatory official with principal regulatory oversight of the trust or with an order of a court of competent jurisdiction that directs the trustee to transfer all trust assets to the insurance regulatory official with principal regulatory oversight of the trust;
(2) The trust assets shall be distributed by and claims filed with and valued by the insurance regulatory official with principal regulatory oversight of the trust in accordance with the laws of the trust's state of domicile that are applicable to the liquidation of domestic insurance companies;
(3) The trustee shall distribute any trust assets or part thereof that are returned by the insurance regulatory official with principal regulatory oversight of the trust, based on such regulatory official's determination that such assets or part thereof are not necessary to satisfy the claims of domestic and foreign ceding insurers of the grantor of the trust, in accordance with the trust instrument; and
(4) The grantor of the trust waives any right otherwise available to the grantor under law that is inconsistent with subdivisions (1) to (3), inclusive, of this subsection.
(j) (1) (A) The commissioner may suspend or revoke a reinsurer's accreditation or certification if, after notice and hearing, the commissioner finds such reinsurer no longer meets the requirements for accreditation or certification.
(B) If a certified reinsurer's domiciliary jurisdiction ceases to be a qualified jurisdiction, as set forth in section 38a-85a, the commissioner may suspend the reinsurer's certification indefinitely, in lieu of revocation.
(2) The commissioner may suspend or revoke a reinsurer's accreditation or certification without notice and a hearing if:
(A) The reinsurer waives its right to a hearing;
(B) The commissioner's action is based on (i) regulatory action taken by a regulatory official of the reinsurer's state of domicile, or (ii) the voluntary surrender or termination of the reinsurer's eligibility to transact the business of insurance or reinsurance in its state of domicile or its primary certifying jurisdiction as described in subdivision (2) of subsection (a) of section 38a-85a; or
(C) The commissioner finds that immediate action is required to protect the public and a court of competent jurisdiction has not stayed the commissioner's action.
(3) (A) While a reinsurer's accreditation or certification is suspended, no credit shall be allowed under this section for a reinsurance contract issued or renewed by the reinsurer on or after the effective date of such suspension, except to the extent that such reinsurer's obligations under such contract are secured in accordance with the provisions of section 38a-86.
(B) If a reinsurer's accreditation or certification is revoked, no credit shall be allowed under this section on and after the effective date of such revocation, except to the extent that such reinsurer's obligations under such contract are secured in accordance with the provisions of subsection (e) of section 38a-85a or section 38a-86.
(4) A reinsurer whose certification has been suspended, revoked or voluntarily surrendered or is inactive shall be treated as a certified reinsurer required to secure one hundred per cent of its obligations, except that this requirement shall not apply to a reinsurer whose certification has been suspended or is inactive if the commissioner continues to assign a high rating to such reinsurer pursuant to section 38a-85a.
(5) Any person aggrieved by the action of the commissioner in revoking or suspending an accreditation or a certification may appeal therefrom in accordance with the provisions of section 38a-19.
(k) (1) A domestic ceding insurer shall manage its reinsurance recoverables in proportion to its own book of business. Such insurer shall notify the commissioner not later than thirty days after (A) reinsurance recoverables from any single assuming insurer or group of affiliated assuming insurers exceed fifty per cent of the domestic ceding insurer's last reported surplus to policyholders, or (B) the domestic ceding insurer determines that reinsurance recoverables from any single assuming insurer or group of affiliated assuming insurers are likely to exceed such limit. Any such notice shall demonstrate that the exposure is safely managed by the domestic ceding insurer.
(2) A ceding insurer shall manage its reinsurance program to ensure diversification. A domestic ceding insurer shall notify the commissioner not later than thirty days after (A) it has ceded to any single assuming insurer or group of affiliated assuming insurers more than twenty per cent of the domestic ceding insurer's gross written premiums in the prior calendar year, or (B) the domestic ceding insurer determines that the reinsurance ceded to any single assuming insurer or group of affiliated assuming insurers is likely to exceed such limit. Any such notice shall demonstrate that the exposure is safely managed by the domestic ceding insurer.
(P.A. 90-41, S. 1, 6; P.A. 94-19; P.A. 08-147, S. 1; P.A. 12-139, S. 1; P.A. 15-144, S. 4; P.A. 17-59, S. 1.)
History: P.A. 94-19 added a reference in Subsec. (e)(1) to “incorporated groups” of underwriters and a requirement that incorporated members of the group not be engaged in any business other than underwriting and subjecting such group to the same level of solvency regulation and control as is exercised on unincorporated members; P.A. 08-147 designated existing provisions in Subsec. (c) as Subsec. (c)(1) and made conforming changes therein, added Subsec. (c)(2) re accredited reinsurers electronically filing a true and complete financial report, and added Subsec. (e)(4) re assuming insurers electronically filing with National Association of Insurance Commissioners, and filing of paper copy with commissioner, a true and complete financial report; P.A. 12-139 amended Subsec. (c)(1) to add Subpara. (E) re demonstration of financial capacity and add provision re assuming insurer's maintenance of a surplus, deleted former Subsec. (e)(2) to (4) and substantially revised existing Subsec. (e)(1) provisions re trust requirements as Subsec. (e)(1) to (3), added new Subsec. (f) re reinsurance ceded to a certified insurer, redesignated existing Subsecs. (f) and (g) as Subsecs. (g) and (h), added Subsec. (i) re trust instrument conditions, added Subsec. (j) re suspension or revocation of accreditation or certification, added Subsec. (k) re management of reinsurance recoverables and programs, and made technical and conforming changes; P.A. 15-144 amended Subsec. (e)(3) by redesignating existing Subpara. (A)(ii) as Subpara. (A)(ii)(II) and adding Subpara. (A)(ii)(I) re authorization of reduction in required trusteed surplus by insurance regulatory official with principal oversight of trust, effective July 1, 2015; P.A. 17-59 amended Subsec. (a) by adding Subdiv. (7) re regulations adopted pursuant to Sec. 38a-88(b) and making technical changes.