Md. Code Regs. 31.05.08.24

Current through Register Vol. 51, No. 22, November 1, 2024

Section 31.05.08.24 - Credit for Reinsurance - Certified Reinsurers

A. The Commissioner shall allow credit for reinsurance ceded by a domestic insurer to an assuming insurer that has been certified as a reinsurer in this State at all times for which statutory financial statement credit for reinsurance is claimed under this regulation.

B. The credit allowed shall be based upon the security held by or on behalf of the ceding insurer in accordance with a rating assigned to the certified reinsurer by the Commissioner.

C. The security shall be in a form consistent with Insurance Article, §§ 5-911 and 5-914, Annotated Code of Maryland, and this chapter.

D. The amount of security required in order for full credit to be allowed shall correspond with the following requirements:

(1) Certification Ratings.

Certification Ratings	Security Required
Secure -1	0%
Secure - 2	10%
Secure - 3	20%
Secure - 4	50%
Secure - 5	75%
Vulnerable - 6	100%

(2) Affiliated reinsurance transactions shall receive the same opportunity for reduced security requirements as all other reinsurance transactions.

(3) The Commissioner shall require the certified reinsurer to post 100 percent security, for the benefit of the ceding insurer or its estate, upon the entry of an order of rehabilitation, liquidation, or conservation against the ceding insurer.

(4) Catastrophic Occurrence.

(a) A certified reinsurer may defer posting security for catastrophe recoverables for a period of up to 1 year from the date of the first instance of a liability reserve entry by the ceding company as a result of a catastrophic occurrence that is likely to result in significant insured losses as recognized by the Commissioner.

(b) The deferral period is contingent upon the certified reinsurer continuing to pay claims in a timely manner as determined by the Commissioner.

(c) Reinsurance recoverables for only the following lines of business as reported on the NAIC annual financial statement related specifically to the catastrophic occurrence will be included in the deferral:

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) Credit for reinsurance under this regulation shall apply only to reinsurance contracts entered into or renewed on or after the effective date of the certification of the assuming insurer. Any reinsurance contract entered into prior to the effective date of the certification of the assuming insurer that is subsequently amended after the effective date of the certification of the assuming insurer or a new reinsurance contract, covering any risk for which collateral was provided previously, shall only be subject to this regulation with respect to losses incurred and reserves reported on or after the effective date of the amendment or new contract.

(6) Nothing in this section shall prohibit the parties to a reinsurance contract from agreeing to provisions establishing security requirements that exceed the minimum security requirements established for certified reinsurers under this section.

E. Certification Procedure.

(1) The Commissioner shall post notice on the Administration's website promptly upon receipt of any application for certification, including instructions on how members of the public may respond to the application. The Commissioner may not take final action on the application until at least 30 days after posting the notice required by this subsection.

(2) The Commissioner shall issue written notice to an assuming insurer that has been approved as a certified reinsurer. Including in such notice shall be the certification rating assigned to the certified reinsurer in accordance with §G(2) of this regulation.

(3) The Commissioner shall publish a list of all certified reinsurers and their ratings.

(4) The Commissioner shall comply with all reporting and notification requirements that may be established by the NAIC with respect to certified reinsurers and qualified jurisdictions.

F. Certification Eligibility Requirements. In order to be eligible for certification, the assuming insurer shall meet the following requirements:

(1) The assuming insurer shall be domiciled and licensed to transact insurance or reinsurance in a qualified jurisdiction, as determined by the Commissioner pursuant to Regulation .26 of this chapter.

(2) The assuming insurer shall maintain capital and surplus, or its equivalent, of no less than $250,000,000, calculated in accordance with §G(2)(h) of this regulation. This requirement may also be satisfied by a group including incorporated and individual unincorporated underwriters having minimum capital and surplus equivalents (net of liabilities) of at least $250,000,000 and a central fund containing a balance of at least $250,000,000.

(3) The assuming insurer shall have financial strength ratings from two or more rating agencies deemed acceptable by the Commissioner. These ratings shall be based on interactive communication between the rating agency and the assuming insurer and may not be based solely on publicly available information. These financial strength ratings shall be one factor used by the Commissioner in determining the rating that is assigned to the assuming insurer. Failure to obtain or maintain at least two financial strength ratings from acceptable rating agencies shall result in the loss of eligibility for certification. Acceptable rating agencies include the following:

(a) Standard & Poor's;

(b) Moody's Investors Service;

(c) Fitch Ratings;

(d) A.M. Best Company; or

(e) A nationally recognized statistical rating organization deemed acceptable by the Commissioner.

(4) Any other requirements imposed by the Commissioner.

(5) If an applicant for certification has been certified as a reinsurer by the insurance regulatory agency of a state accredited by the NAIC, the Commissioner has the discretion to defer to that insurance regulatory agency to designate the assuming insurer as a certified reinsurer in this State.

G. Certification Rating.

(1) The Commissioner shall rate each certified reinsurer on a legal entity basis and with due consideration being given to a group rating where appropriate, except that a group 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.

(2) Factors that may be considered as part of the certification rating process include, but are not limited to:

(a) The certified reinsurer's financial strength rating from an acceptable rating agency pursuant to §F(3) of this regulation, as follows:

(i) A certified reinsurer may not be eligible for a certification rating higher than the rating corresponding with the financial strength ratings set forth in §G(2)(a)(iii) of this regulation.

(ii) The Commissioner shall use the lowest financial strength rating received from an acceptable rating agency in establishing the maximum certification rating of a certified reinsurer.

(iii) Financial Strength Rating Chart.

Ratings	Best	S&P	Moody's	Fitch
Secure - 1	A++	AAA	Aaa	AAA
Secure - 2	A+	AA+, AA, AA-	Aa1, Aa2, Aa3	AA+, AA, AA-
Secure - 3	A	A+, A	A1, A2	A+, A
Secure - 4	A-	A-	A3	A-
Secure - 5	B++, B+	BBB+, BBB, BBB-	Baa1, Baa2, Baa3	BBB+, BBB, BBB-
Vulnerable - 6	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

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

(c) 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);

(d) For certified reinsurers not domiciled in the U.S., a review annually of the Maryland Insurance Administration Reinsurance Application and NAIC Form CR-F Assumed Reinsurance (for Property/Casualty Reinsurers) or NAIC Form CR-S Reinsurance Assumed (for Life and Health Reinsurers);

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

(f) Regulatory actions against the certified reinsurer;

(g) The report of the independent auditor on the financial statements of the insurance enterprise, on the basis described in §G(2)(h) of this regulation;

(h) For certified reinsurers not domiciled in the U.S., audited financial statements, regulatory filings and actuarial opinions (as filed with the non-U.S. jurisdiction supervisor, with a translation into English). Upon the initial application for certification, the Commissioner shall consider audited financial statements for the last 2 years filed with its non-U.S. jurisdiction supervisor;

(i) The liquidation priority of obligations to a ceding insurer in the certified reinsurer's domiciliary jurisdiction in the context of an insolvency proceeding;

(j) A certified reinsurer's participation in any solvent scheme of arrangement, or similar procedure, which involves U.S. ceding insurers. The Commissioner shall receive prior notice from a certified reinsurer that proposes participation by the certified reinsurer in a solvent scheme of arrangement; and

(k) Any other information deemed relevant by the Commissioner.

H. Certification Rating and Security Adjustment. Based on the analysis conducted under §G(2) of this regulation of a certified reinsurer's history of prompt payment of claims, the Commissioner may adjust the security the certified reinsurer is required to post to protect its liabilities to U.S. ceding insurers provided that the Commissioner shall, at a minimum, increase the security the certified reinsurer is required to post by one certification rating level pursuant to §G(2)(a)(iii) of this regulation if the Commissioner finds that:

(1) More than 15 percent of the certified reinsurer's ceding insurers have overdue reinsurance recoverables on paid losses of 90 calendar days or more which are not in dispute and which exceed $100,000 for each cedent; or

(2) The aggregate amount of reinsurance recoverables on paid losses which are not in dispute that are overdue by 90 calendar days or more exceeds $50,000,000.

I. The Commissioner may not certify any assuming insurer that is domiciled in a jurisdiction that the Commissioner has determined does not adequately and promptly enforce final U.S. judgments or arbitration awards.

J. For initial eligibility as a certified reinsurer, an applicant shall agree to meet applicable information filing requirements as determined by the Commissioner. All information submitted by applicants, which is not otherwise public information subject to disclosure, shall be exempt from disclosure under General Provisions Article, Title 4, Annotated Code of Maryland, and shall be withheld from public disclosure. The applicant shall file with the Commissioner:

(1) A properly executed NAIC Form CR-F Assumed Reinsurance (for Property/Casualty Reinsurers) or NAIC Form CR-S Reinsurance Assumed (for Life and Health Reinsurers);

(2) A Maryland Insurance Administration Reinsurance Application;

(3) An updated list of all disputed and overdue reinsurance claims regarding reinsurance assumed from U.S. domestic ceding insurers;

(4) The report of the independent auditor on the financial statements of the insurance enterprise and the audited financial statements, regulatory filings and actuarial opinions (as filed with the non-U.S. jurisdiction supervisor, with a translation into English). Upon the initial application for certification, the Commissioner may consider audited financial statements for the last 2 years filed with its nonU.S. jurisdiction supervisor;

(5) A certification from the certified reinsurer's domestic regulator that the certified reinsurer is in good standing and maintains capital in excess of the jurisdiction's highest regulatory action level;

(6) Any other document or information that the Commissioner considers necessary to determine eligibility to act as a certified reinsurer; and

(7) A properly executed NAIC Form CR-1 Certificate of Certified Reinsurer as evidence that the applicant agrees to:

(a) Submit to the jurisdiction of the State;

(b) The Appointment of the Commissioner as an agent for service of process in this State; and

(c) Provide security for 100 percent of the assuming insurer's liabilities attributable to reinsurance ceded by U.S. ceding insurers if it resists enforcement of a final U.S. judgment.

K. If an applicant for certification has been certified as a reinsurer in a NAIC accredited jurisdiction, the Commissioner shall have the discretion to defer to that jurisdiction's certification, and to defer to the rating assigned by that jurisdiction, if the assuming insurer submits a properly executed NAIC Form CR-1 and any additional information the Commissioner requires. The assuming insurer shall be considered to be a certified reinsurer in this State based on the following limitations:

(1) Any change in the certified reinsurer's status or rating in the other jurisdiction shall apply automatically in this State as of the date it takes effect in the other jurisdiction. The certified reinsurer shall notify the Commissioner of any change in its status or rating within 10 days after receiving notice of the change.

(2) The Commissioner may withdraw recognition of the other jurisdiction's rating at any time and assign a new rating in accordance with Regulation .25 of this chapter.

(3) The Commissioner may withdraw recognition of the other jurisdiction's certification at any time, with written notice to the certified reinsurer. Unless the Commissioner suspends or revokes the certified reinsurer's certification in accordance with Regulation .25 of this chapter, the certified reinsurer's certification shall remain in good standing in this State for a period of 3 months, which shall be extended if additional time is necessary to consider the assuming insurer's application for certification in this State.

L. For continued eligibility as a certified reinsurer, a certified reinsurer shall agree to meet applicable information filing requirements as determined by the Commissioner. All information submitted by certified reinsurers which is not otherwise public information subject to disclosure shall be exempted from disclosure under General Provisions Article, Title 4, Annotated Code of Maryland, and shall be withheld from public disclosure. The certified reinsurer shall by May 30 of each year, file with the Commissioner:

(1) A properly executed NAIC Form CR-F Assumed Reinsurance (for Property/Casualty Reinsurers) or NAIC Form CR-S Reinsurance Assumed (for Life and Health Reinsurers);

(2) A Maryland Insurance Administration Reinsurance Application;

(3) An updated list of all disputed and overdue reinsurance claims regarding reinsurance assumed from U.S. domestic ceding insurers;

(6) Any other document or information that the Commissioner considers necessary to determine continued eligibility to act as a certified reinsurer; and

(7) A properly executed NAIC Form CR-1 Certificate of Certified Reinsurer as evidence that the applicant agrees to:

(a) Submit to the jurisdiction of the State;

(b) The Appointment of the Commissioner as an agent for service of process in this State; and

(c) Provide security for 100 percent of the assuming insurer's liabilities attributable to reinsurance ceded by U.S. ceding insurers if it resists enforcement of a final U.S. judgment.

M. Notification of the Commissioner by the Certified Reinsurer. In order to obtain or maintain a certification, a certified reinsurer shall agree to notify and provide a written statement describing the changes and the reasons therefore in writing to the Commissioner within 10 business days of:

(1) Any regulatory actions taken against the certified reinsurer;

(2) Any change in the provisions of its domiciliary license; or

(3) Any change in rating by an acceptable rating agency pursuant to §F(3) of this regulation.

Md. Code Regs. 31.05.08.24

Regulations .24 adopted effective June 5, 2006 (33:11 Md. R. 953); amended effective 48:13 Md. R. 510, eff. 7/1/2021