Fla. Admin. Code R. 69O-144.007

Current through Reg. 50, No. 253; December 31, 2024

Section 69O-144.007 - Credit for Reinsurance from Certified Reinsurers

(1) Purpose. Section 624.610(3)(e), F.S., gives the Office the option to allow credit for reinsurance without full collateral for transactions involving assuming insurers not meeting the requirements of section 624.610(3)(a), (b), (c), or (d), F.S. This rule does not apply to assuming insurers that meet the requirements of section 624.610(3)(a), (b), (c), or (d), F.S. This rule is not an attempt to assert extra-territorial jurisdiction. Insurers that write in states other than Florida will need to comply with the laws of those states.

(2) Definitions. As used in this rule the following terms have the following meanings:

(a) "Certified reinsurer" means an assuming insurer that may not meet the requirements of section 624.610(3)(a), (b), (c), or (d), F.S., and that has been determined by the Office to have met the requirements set forth in subsections (7) and (8) of this rule.

(b) "Qualified jurisdiction" means a jurisdiction which has met the requirements set forth in subsection (9) of this rule.

(3) Credit for reinsurance under this rule shall apply only to reinsurance contracts entered into renewed or amended on or after the effective date of the certification of the assuming insurer, provided that the certified reinsurer holds surplus in excess of $250 million and maintains a secure financial strength rating from at least two of the rating agencies indicated in this subsection. Due consideration shall be given to the group rating where appropriate. The credit is subject to the limitations set forth in this rule. As provided in section 624.610(3)(e), F.S., acceptable rating agencies are:

(a) Standard and Poor's;

(b) Moody's Investors Service;

(c) Fitch Ratings;

(d) A.M. Best Company;

(e) Demotech; and,

(f) Any other rating agency deemed acceptable by order of the Office. Copies of the orders issued by the Office deeming rating agencies as having experience and expertise in rating insurers doing business in Florida pursuant to Section 624.610(3)(e), F.S., are located at https://www.floir.com/resources-and-reports/certified-reinsurers.

(4) The collateral required to allow one hundred percent (100%) credit shall be no less than the percentage specified for the lowest rating as indicated below:

Rating	Collateral Required	Best	S&P	Moody's	Fitch	Demotech
Secure - 1	0%	A++	AAA	Aaa	AAA	A"
Secure - 2	10%	A+	AA+, AA, AA-	Aa1, Aa2, Aa3	AA+, AA, AA-	A'
Secure - 3	20%	A	A+, A	A1, A2	A+, A	A
Secure - 4	50%	A-	A-	A3	A-	n/a
Secure - 5	75%	B++, B+	BBB+, BBB, BBB-	Baa1, Baa2, Baa3	BBB+, BBB, BBB-	n/a
Vulnerable - 6	100%	B, B-, C++, C+, C, C-, D, E, F	BB+, BB, BB-, B+, B, B-, CCC, CC, C, D, R	Ba1, Ba2, Ba3, B1, B2, B3, Caa, Ca, C	BB+, BB, BB-, B+, B, B-, CCC+, CC, CCC-, DD	n/a

For reinsurance ceded by Florida domestic property insurers for short-tailed lines as defined below, any collateral required to be posted may be subject to a one-year deferral from the date of the first instance of a liability reserve entry as a result of a catastrophic loss from a named Hurricane. For these purposes, a short-tailed line of business is defined as any one of the following lines of business as reported on the NAIC annual financial statement:

Line 1 Fire

Line 2 Allied Lines

Line 3 Farmowners multiple peril

Line 4 Homeowners multiple peril

Line 5 Commercial multiple peril

Line 9 Inland marine

Line 12 Earthquake

Line 21 Auto physical damage

(5) Nothing in this rule shall be construed to deny the ceding insurer the ability to take credit for reinsurance for the remainder of its liabilities with a certified reinsurer so long as those amounts are secured with acceptable collateral pursuant to Section 624.610(5), F.S., and subsection 69O-144.005(5), F.A.C.

(6) In addition to the trust fund required under Section 624.610(3)(c), F.S., the Office shall permit an assuming insurer that maintains a trust fund in a qualified U.S. financial institution, as that term is defined in Section 624.610(6)(b), F.S., for the payment of the valid claims of its U.S. ceding insurers and their assigns and successors in interest to also maintain in a qualified U.S. financial institution a trust fund constituting a trusteed amount at least equal to the collateral required in accordance with subsection (4) of this rule, to secure the liabilities attributable to U.S. ceding insurers under reinsurance policies (contracts) entered into or renewed by such assuming insurer on or after the effective date of this rule or such other date as may be established in other states for ceding insurers domiciled in such states, but only when maintenance of such a trust fund serves to protect the interests of the public and the interests of insurer solvency.

(7) A ceding insurer may not take credit pursuant to this rule unless:

(a) The assuming insurer has been determined, by order of the Office, to be a certified reinsurer, pursuant to subsection (8) of this rule;

(b) The ceding insurer maintains satisfactory evidence that the certified reinsurer meets the standards of solvency, including standards for capital adequacy, established by its domestic regulator; and,

(c) All reinsurance contracts between the ceding insurer and the certified reinsurer provide for:

1. An insolvency clause in conformance with Section 624.610(9), F.S.;

2. A submission to jurisdiction clause in conformance with Sections 624.610(3)(f)1.a. and 2., F.S.; and,

3. A service of process clause in conformance with Sections 624.610(3)(f)1.b. and 2., F.S.

(8) Status as certified reinsurer:

(a) An assuming insurer seeking certified reinsurer status in this state pursuant to this rule, shall file an application in accordance with paragraph 69O-144.002(4)(a), F.A.C., and the requirements of this rule. The application shall include written confirmation, in the form of a properly executed Form OIR-C1-2116, "Certificate of Certified Reinsurer," which is incorporated by reference in paragraph 69O-144.002(4)(a), F.A.C., that the assuming insurer submits to the jurisdiction of the U.S. courts, appoints the Chief Financial Officer, pursuant to Section 48.151, F.S., as its agent for service of process in this state, and agrees to post one hundred percent (100%) collateral for its Florida liabilities if it resists enforcement of a valid and final judgment from a court in the United States, or if otherwise required by the Office pursuant to this rule. If an NAIC accredited jurisdiction has determined that a certified reinsurer has met the conditions in that jurisdiction to become a certified reinsurer, the Office may accept documentation filed with that NAIC accredited jurisdiction or with the NAIC to satisfy the certified reinsurer's status in this state.

(b) Upon receipt of an application for a determination as a certified reinsurer, the Office shall post notice on the Office's website. Such notice shall include instructions on how members of the public may respond to the application. The Office shall not take final action on the application until at least thirty (30) days after posting the notice required by this paragraph.

(c) The determination of certified reinsurer status will be made by order issued by the Office.

(d) To become a certified reinsurer, the assuming insurer, at a minimum:

1. Shall hold surplus in excess of $250 million. This requirement may also be satisfied by an association including incorporated and individual unincorporated underwriters having minimum capital and surplus equivalents (net of liabilities) of at least $250 million and a central fund containing a balance of at least $250 million,

2. Shall be authorized in its domiciliary jurisdiction to assume the kind or kinds of reinsurance ceded by the ceding insurer; and,

3. Shall be domiciled in a qualified jurisdiction, as defined in subsection (9) of this rule.

(e) Each certified reinsurer shall be rated on a legal entity basis, with due consideration being given to the group rating where appropriate, except that an association including incorporated and individual unincorporated underwriters that has been approved to do business as a single certified reinsurer may be evaluated on the basis of its group rating. Factors that may be considered as part of the evaluation process include, but are not limited to, the following:

1. The certified reinsurer's financial strength rating from an acceptable rating agency. The maximum rating that a certified reinsurer may be assigned will correspond to its financial strength rating as outlined in subsection (4) of this rule. The Office shall use the lowest financial strength rating received from a rating agency indicated in subsection (3) of this rule, in establishing the maximum rating of a certified reinsurer. A failure to obtain or maintain at least two financial strength ratings from acceptable rating agencies pursuant to subsection (3), will result in loss of eligibility for certification;

2. The business practices of the certified reinsurer in dealing with its ceding insurers, including its record of compliance with reinsurance contractual terms and obligations;

3. For certified reinsurers domiciled in the U.S., a review of the most recent applicable NAIC Annual Statement Blank, either Schedule F (for property/casualty reinsurers) or Schedule S (for life and health reinsurers);

4. The reputation of the certified reinsurer for prompt payment of claims under reinsurance agreements, based on an analysis of ceding insurers' Schedule F reporting of overdue reinsurance recoverables, including the proportion of obligations that are more than ninety (90) days past due or are in dispute, with specific attention given to obligations payable to companies that are in administrative supervision or receivership;

5. Regulatory actions against the certified reinsurer;

6. The liquidation priority of obligations to a ceding insurer in the certified reinsurer's domiciliary jurisdiction in the context of an insolvency proceeding; and,

7. The certified reinsurer's participation in any solvent schemes of arrangement, or similar procedure, that involves U.S. ceding insurers. The certified reinsurer shall notify the Office prior to participation in any solvent scheme of arrangement.

(f) If the Office determines, based upon the material submitted, and any other relevant information, that it is in the best interests of market stability and the solvency of ceding insurers, the Office will find, by order, that the insurer is a certified reinsurer and will set an amount of credit allowed for the reinsurer if lower than the amount set forth in subsection (4).

(g) The Office shall publish and maintain a list of certified reinsurers on the Office's website. Such list shall disclose the rating assigned to the certified reinsurer pursuant to subsection (4) of this rule.

(h) An assuming insurer seeking to maintain its certified reinsurer status in this state shall annually file the information required by paragraph 69O-144.002(4)(b), F.A.C. If an NAIC accredited jurisdiction has determined that a certified reinsurer has met the conditions in that jurisdiction to become a certified reinsurer, the Office may accept documentation filed with that NAIC accredited jurisdiction or with the NAIC to satisfy the certified reinsurer's status in this state.

(i) A certified reinsurer must advise the Office within ten (10) days of any changes in its ratings assigned by rating agencies, domiciliary license status, or of any regulatory actions taken against the certified reinsurer. Such notice shall include a statement describing such actions and the reasons therefore.

(j) At any time, if the Office determines that it is in the best interests of market stability and the solvency of ceding insurers, the Office will withdraw, by order, any determination of an insurer as a certified reinsurer or require the certified reinsurer to post additional collateral.

(k) If the rating of a certified reinsurer rises above that used by the Office in its determination of the credit allowed for the reinsurer, an affected party may petition the Office for a redetermination of the credit allowed. If it is in the best interests of market stability and the solvency of ceding insurers, the Office will raise the credit allowed for the certified reinsurer.

(9) Qualified Jurisdictions.

(a) The determination of a jurisdiction as a qualified jurisdiction is to be made by the Office. No jurisdiction shall be determined to be a qualified jurisdiction unless:

1. The insurance regulatory body of the jurisdiction agrees that it will provide information requested by the Office regarding its certified domestic reinsurers;

2. The Office has determined that the jurisdiction has a satisfactory structure and authority with regard to solvency regulation, acceptable financial and operating standards for reinsurers in the domiciliary jurisdiction, acceptable transparent financial reports filed in accordance with generally accepted accounting principles, and verifiable evidence of adequate and prompt enforcement of valid U.S. judgments or arbitration awards;

3. The Office has determined that the history of performance by reinsurers in the jurisdiction is such that the insuring public will be served by a finding of qualification;

4. For non-U.S. jurisdictions, the jurisdiction allows U.S. reinsurers access to the market of the domiciliary jurisdiction on terms and conditions that are at least as favorable as those provided in Florida law and regulations for unaccredited non-U.S. assuming insurers; and,

5. There is no other documented information that it would not serve the best interests of the insuring public and the solvency of ceding insurers to make a finding of qualification.

(b) If the NAIC issues findings that certain jurisdictions should be considered qualified jurisdictions, the Office shall, if it would serve the best interests of the insuring public and the solvency of ceding insurers, make a determination that jurisdictions on the NAIC list are qualified jurisdictions.

(c) A U.S. jurisdiction that meets the requirements for accreditation under the NAIC financial standards and accreditation program shall be recognized as a qualified jurisdiction.

(d) The Office shall publish a list of jurisdictions that have been determined to be qualified on its website.

(e) If the Office determines that it is in the best interests of market stability and the solvency of ceding insurers, the Office shall withdraw, by order, the determination of a jurisdiction as a qualified jurisdiction.

(10) A certified reinsurer shall secure obligations assumed from U.S. ceding insurers under this rule and Section 624.610(3)(e), F.S., at a level consistent with its rating pursuant to subsections (3) and (4) of this rule, or by order of the Office pursuant to Section 624.610(5), F.S.

(a) In order for a domestic ceding insurer to qualify for full financial statement credit for reinsurance ceded to a certified reinsurer, the certified reinsurer shall maintain security as allowed by Section 624.610(5), F.S., and consistent with Section 624.610(3)(e), F.S., or in a multibeneficiary trust in accordance with Section 624.610(3)(c), F.S., and Rule 69O-144.006, F.A.C., except as otherwise provided in this subsection.

(b) If a certified reinsurer maintains a trust to fully secure its obligations subject to Section 624.610(3)(c), F.S., and Rule 69O-144.006, F.A.C., and chooses to secure its obligations incurred as a certified reinsurer in the form of a multibeneficiary trust, the certified reinsurer shall maintain separate trust accounts for its obligations incurred under reinsurance agreements issued or renewed as a certified reinsurer with reduced security as permitted by this subsection or comparable laws of other U.S. jurisdictions and for its obligations subject to Section 624.610(3)(c), F.S., and Rule 69O-144.006, F.A.C. It shall be a condition to the grant of certification under Section 624.610(3)(e), F.S., and this rule, that the certified reinsurer shall have bound itself, by the language of the trust and agreement with the insurance regulator with principal regulatory oversight of each such trust account, to fund, upon termination of any such trust account, out of the remaining surplus of such trust any deficiency of any other such trust account.

(c) The minimum trusteed surplus requirements provided in Section 624.610(3)(c), F.S., and Rule 69O-144.006, F.A.C., are not applicable with respect to a multibeneficiary trust maintained by a certified reinsurer for the purpose of securing obligations incurred under this subsection, except that such trust shall maintain a minimum trusteed surplus of $10 million.

(d) With respect to obligations incurred by a certified reinsurer under this subsection, if the security is insufficient, the Office shall reduce the allowable credit by an amount proportionate to the deficiency, and has the discretion to impose further reductions in allowable credit upon finding that there is a material risk that the certified reinsurer's obligations will not be paid in full when due.

(e) For purposes of this subsection, a certified reinsurer whose certification has been terminated for any reason shall be treated as a certified reinsurer required to secure one hundred percent (100%) of its obligations.

1. As used in this subsection, the term "terminated" refers to revocation, suspension, voluntary surrender and inactive status.

2. If the Office continues to assign a higher rating as permitted by other provisions of this rule, this requirement does not apply to a certified reinsurer in inactive status or to a reinsurer whose certification has been suspended.

(11)

(a) If the rating of a certified reinsurer is below or falls below that required in subsection (4) of this rule, for the respective amount of credit, the Office shall upon written notice assign a new rating to the certified reinsurer in accordance with subsection (4). Notwithstanding the change or withdrawal of a certified reinsurer's rating, the Office, upon a determination that the interest of ensuring market stability and the solvency of the ceding insurer requires it, shall, upon request by the ceding insurer, authorize the ceding insurer to continue to take credit for the reinsurance recoverable, or part thereof, relating to the rating change or withdrawal for some specified period of time following such change or withdrawal, unless the reinsurance recoverable is deemed uncollectible.

(b) If the ceding insurer's experience in collecting recoverables from any certified reinsurer indicates that the credit to the ceding insurer should be lower, the ceding insurer shall notify the Office of this.

(c) The Office shall have the authority to suspend, revoke, or otherwise modify a certified reinsurer's certification at any time if the certified reinsurer fails to meet its obligations or security requirements under this rule, or if other financial or operating results of the certified reinsurer, or documented significant delays in payment by the certified reinsurer, would cause the Office to determine that the certified reinsurer is unwilling or unable to meet its contractual obligations.

(d) If the rating of a certified reinsurer is upgraded by the Office, the certified reinsurer may meet the security requirements applicable to its new rating on a prospective basis, but the Office shall require the certified reinsurer to post security under the previously applicable security requirements as to all contracts in force on or before the effective date of the upgraded rating. If the rating of a certified reinsurer is downgraded by the Office, the Office shall require the certified reinsurer to meet the security requirements applicable to its new rating for all business it has assumed as a certified reinsurer.

(e) Upon revocation of the certification of a certified reinsurer by the Office, the assuming insurer shall be required to post security in accordance with section 624.610, F.S., in order for the ceding insurer to continue to take credit for reinsurance ceded to the assuming insurer.

(12) The ceding insurer shall give immediate notice to the Office and provide for the necessary increased reserves with respect to any reinsurance recoverables applicable, in the event:

(a) That obligations of a certified reinsurer for which credit for reinsurance was taken under this rule are more than ninety (90) days past due and not in dispute, or

(b) That there is any indication or evidence that any certified reinsurer, with whom the ceding insurer has a contract, fails to substantially comply with the solvency requirements under the laws of its domiciliary jurisdiction.

(13) The Office shall disallow all or a portion of the credit based on a review of the ceding insurer's reinsurance program, the financial condition of the certified reinsurer, the certified reinsurer's claim payment history, or any other relevant information when such action is in the best interests of market stability and the solvency of the ceding insurer. At any time, the Office may request additional information from the certified reinsurer. The failure of a certified reinsurer to cooperate with the Office is grounds for the Office to withdraw the status of the insurer as a certified reinsurer or for the disallowance or reduction of the credit granted under this rule.

(14)

(a) Upon the entry of an order of rehabilitation, liquidation, or conservation against the ceding insurer, pursuant to Chapter 631, Part I, F.S., or the equivalent law of another jurisdiction, a certified reinsurer, within thirty (30) days of the order, shall fund the entire amount that the ceding insurer has taken, as an asset or deduction from reserves, for reinsurance recoverable from the certified reinsurer. The insurer may request a variance and waiver from this provision as provided by Section 120.542, F.S.

(b) If a certified reinsurer fails to comply on a timely basis with paragraph (a) of this subsection, the Office shall withdraw the reinsurer's certification under this rule.

(15) The Office may, by order, determine that credit shall not be allowed to any ceding insurer for reinsured risk pursuant to this rule if it appears to the Office that granting of the credit to the ceding insurer would not be in the public interest or serve the best interests of the ceding insurer's solvency.

(16) Nothing in this rule prohibits a ceding insurer and a reinsurer from entering into agreements establishing collateral requirements in excess of those set forth in this rule.

Fla. Admin. Code Ann. R. 69O-144.007

Rulemaking Authority 624.308, 624.610(4), (15) FS. Law Implemented 624.307(1), 624.424, 624.610 FS.

New 10-29-08, Amended by Florida Register Volume 41, Number 135, July 14, 2015 effective 7/28/2015, Amended by Florida Register Volume 43, Number 138, July 18, 2017 effective 7/30/2017, Amended by Florida Register Volume 48, Number 169, August 30, 2022 effective 9/13/2022.

New 10-29-08, Amended 7-28-15, 7-30-17, 9-13-22.