Relating to credit allowed to domestic ceding insurers for reinsurance ceded to reinsurers, and including applicability provisions

A “reciprocal jurisdiction” is defined in the bill as a jurisdiction that is a non-United States jurisdiction that is subject to an in-force covered agreement with the United States, or a United States jurisdiction that meets the requirements for accreditation under the NAIC financial regulation standards and accreditation program, or a qualified jurisdiction as determined by the commissioner that meets certain additional requirements consistent with the terms and conditions of an in-force covered agreement. “Covered agreement” is defined in the bill as an agreement entered into pursuant to Tit. §§313-314, of the Dodd-Frank Wall Street Reform and Consumer Protection Act, that is currently in effect or in a period of provisional application and that addresses the elimination, under specified conditions, of collateral requirements as a condition for entering into a reinsurance agreement with a ceding insurer domiciled in this state, or for allowing the ceding insurer to recognize credit for reinsurance. The bill requires an assuming insurer to maintain minimum capital and surplus, or its equivalent, calculated according to the methodology of the assuming insurer’s domiciliary jurisdiction, in an amount specified by the commissioner of insurance (commissioner). If an assuming insurer is an association, including incorporated and individual unincorporated underwriters, the assuming insurer must maintain minimum capital and surplus equivalents, net of liabilities, calculated according to the methodology of the assuming insurer’s domiciliary jurisdiction, and a central fund containing a balance in an amount specified by the commissioner. The bill also requires an assuming insurer to maintain a minimum solvency or capital ratio as specified by the commissioner. If the assuming insurer is an association, including incorporated and individual unincorporated underwriters, the assuming insurer must maintain a minimum solvency or capital ratio in the reciprocal jurisdiction where the assuming insurer has its head office or is domiciled, and where the assuming insurer is also licensed. The bill requires an assuming insurer to provide written notice and an explanation to the commissioner if the assuming insurer falls below the minimum requirements for surplus, solvency, or capital, or if any regulatory action is taken against the assuming insurer for noncompliance with applicable laws. An assuming insurer must also provide written consent to the commissioner that the assuming insurer will submit to the jurisdiction of the courts of this state and to the appointment of the commissioner as agent for service of process. The commissioner may also require that consent for service of process be included in each reinsurance agreement entered into by the assuming insurer. The bill provides that an assuming insurer must also agree that the assuming insurer will pay all final judgments obtained against it by a ceding insurer, or the ceding insurer’s legal successor, that have been declared enforceable in the jurisdiction in which the final judgment is obtained. Each reinsurance agreement must also include a provision requiring the assuming insurer to provide security in an amount equal to 100 percent of the assuming insurer’s liabilities attributable to reinsurance ceded pursuant to that reinsurance agreement if the assuming insurer resists enforcement of a final judgment. An assuming insurer is required by the bill to provide the commissioner with confirmation that the assuming insurer is not presently participating in any solvent scheme of arrangement which involves Iowa’s ceding insurers, and written agreement that the assuming insurer will notify the ceding insurer and the commissioner and will provide security in an amount equal to 100 percent of the assuming insurer’s liabilities to the ceding insurer, should the assuming insurer enter into a solvent scheme of arrangement. An assuming insurer is required to maintain prompt claim payments under all reinsurance agreements. The assuming insurer’s supervisory authority must annually confirm to the commissioner that the assuming insurer complies with the requirements for minimum surplus, solvency, and capital. The bill requires the commissioner to create and publish a list of reciprocal jurisdictions which must be determined by the commissioner as detailed in the bill. The commissioner must also create and publish a list of assuming insurers that have satisfied the conditions required for cessions to be granted credit. The commissioner may add an assuming insurer to that list if a NAIC accredited jurisdiction has added the assuming insurer to the NAIC accredited jurisdiction’s list of assuming insurers, or if the assuming insurer submits the information as detailed in the bill to the commissioner, and complies with any additional requirements pursuant to rules adopted by the commissioner. The bill allows the commissioner to revoke or suspend the eligibility of an assuming insurer for inclusion on the list if the commissioner determines that an assuming insurer no longer meets the requirements to be on the list. If an assuming insurer’s eligibility is suspended, any reinsurance agreements issued, amended, or renewed after the effective date of the suspension do not qualify for credit except to the extent that the assuming insurer’s obligations under the reinsurance agreement are secured. If an assuming insurer’s eligibility is revoked, credit for reinsurance shall not be granted after the effective date of the revocation with respect to any reinsurance agreements entered into by the assuming insurer, including reinsurance agreements entered into prior to the date of revocation, except to the extent that the assuming insurer’s obligations under the reinsurance agreement are secured in a form acceptable to the commissioner. If a ceding insurer is subject to a legal process of rehabilitation, liquidation, or conservation, the ceding insurer may seek an order requiring that the assuming insurer post security for all outstanding ceded liabilities. The bill does not limit or alter the capacity of the parties to a reinsurance agreement to agree on requirements for security or other terms in the reinsurance agreement, except as expressly prohibited by Code chapter 521B, or any other applicable law or regulation. Credit may be taken under the provisions of the bill only for reinsurance agreements entered into, amended, or renewed on or after the effective date of the bill, and only with respect to losses incurred and reserves reported on or after the later of the date on which the assuming insurer has met all eligibility requirements under the bill, and the effective date of the new reinsurance agreement, amendment, or renewal. The bill does not authorize an assuming insurer to withdraw or reduce the security provided under any reinsurance agreement except as permitted by the terms of the reinsurance agreement, or limit or alter the capacity of parties to any reinsurance agreement to renegotiate the reinsurance agreement. The bill applies to all cessions under reinsurance agreements that have an inception, anniversary, or renewal date after July 1, 2020.