14 Va. Admin. Code § 5-300-97

Current through Register Vol. 40, No. 22, June 17, 2024

Section 14VAC5-300-97 - Credit for reinsurance; reciprocal jurisdictions

A. Pursuant to § 38.2-1316.2E of the Act, the commission shall allow credit for reinsurance ceded by a domestic insurer to an assuming insurer that is licensed to write reinsurance by, and has its head office or is domiciled in a reciprocal jurisdiction and that meets the other requirements of this chapter.

B. A "reciprocal jurisdiction" is a jurisdiction, as designated by the commission pursuant to subsection D of this section, that meets one of the following:

1. A non-United States jurisdiction that is subject to an in-force covered agreement with the United States, each within its legal authority or, in the case of a covered agreement between the United States and the European Union, is a member state of the European Union. For purposes of this subsection, a "covered agreement" is an agreement entered into pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act ( 31 USC §§ 313 and 314 ) that is currently in effect or in a period of provisional application and addresses the elimination, under specified conditions, of collateral requirements as a condition for entering into any reinsurance agreement with a ceding insurer domiciled in this Commonwealth or for allowing the ceding insurer to recognize credit for reinsurance;

2. A United States jurisdiction that meets the requirements for accreditation under the NAIC financial standards and accreditation program; or

3. A qualified jurisdiction, as determined by the commission pursuant to § 38.2-1316.2D of the Code of Virginia and 14VAC5-300-95 C, that is not otherwise described in subdivision 1 or 2 of this subsection and that the commission determines meets all of the following additional requirements:

a. Provides that an insurer that has its head office or is domiciled in such qualified jurisdiction shall receive credit for reinsurance ceded to a United States-domiciled assuming insurer in the same manner as credit for reinsurance is received for reinsurance assumed by insurers domiciled in such qualified jurisdiction;

b. Does not require a United States-domiciled assuming insurer to establish or maintain a local presence as a condition for entering into a reinsurance agreement with any ceding insurer subject to regulation by the non-United States jurisdiction or as a condition to allow the ceding insurer to recognize credit for such reinsurance;

c. Recognizes the United States state regulatory approach to group supervision and group capital by providing written confirmation by a competent regulatory authority in such qualified jurisdiction that insurers and insurance groups that are domiciled or maintain their headquarters in this Commonwealth or another jurisdiction accredited by the NAIC shall be subject only to worldwide prudential insurance group supervision, including worldwide group governance, solvency and capital, and reporting, as applicable, by the commission or the commissioner of the domiciliary state and will not be subject to group supervision at the level of the worldwide parent undertaking of the insurance or reinsurance group by the qualified jurisdiction; and

d. Provides written confirmation by a competent regulatory authority in such qualified jurisdiction that information regarding insurers and the insurers' parent, subsidiary, or affiliated entities, if applicable, shall be provided to the commission in accordance with a memorandum of understanding or similar document between the commission and such qualified jurisdiction, including to the International Association of Insurance Supervisors Multilateral Memorandum of Understanding or other multilateral memoranda of understanding coordinated by the NAIC.

C. Credit shall be allowed when the reinsurance is ceded from an insurer domiciled in this Commonwealth to an assuming insurer meeting each of the conditions set forth in this subsection.

1. The assuming insurer must be licensed to transact reinsurance by and have its head office or be domiciled in a reciprocal jurisdiction.

2. The assuming insurer must have and maintain on an ongoing basis minimum capital and surplus, or its equivalent, calculated on at least an annual basis as of the preceding December 31 or at the annual date otherwise statutorily reported to the reciprocal jurisdiction and confirmed as set forth in subdivision C 7 of this subsection according to the methodology of its domiciliary jurisdiction, in the following amounts:

a. No less than $250 million; or

b. If the assuming insurer is an association, including incorporated and individual unincorporated underwriters:

(1) Minimum capital and surplus equivalents (net of liabilities) or own funds of the equivalent of at least $250 million; and

(2) A central fund containing a balance of the equivalent of at least $250 million.

3. The assuming insurer must have and maintain on an ongoing basis a minimum solvency or capital ratio, as applicable, as follows:

a. If the assuming insurer has its head office or is domiciled in a reciprocal jurisdiction as defined in subdivision B 1 of this section, the ratio specified in the applicable covered agreement;

b. If the assuming insurer is domiciled in a reciprocal jurisdiction as defined in subdivision B 2 of this section, a risk-based capital (RBC) ratio of 300% of the authorized control level, calculated in accordance with the formula developed by the NAIC; or

c. If the assuming insurer is domiciled in a reciprocal jurisdiction as defined in subdivision B 3 of this section, after consultation with the reciprocal jurisdiction and considering any recommendations published through the NAIC Committee Process, such solvency or capital ratio as the commission determines to be an effective measure of solvency.

4. The assuming insurer must agree to and provide adequate assurance, in the form of a properly executed Certificate of Reinsurer Domiciled in Reciprocal Jurisdiction Form RJ-1 of this chapter, of its agreement to the following:

a. The assuming insurer must agree to provide prompt written notice and explanation to the commission if it falls below the minimum requirements set forth in subdivision 2 or 3 of this subsection or if any regulatory action is taken against it for serious noncompliance with applicable law.

b. The assuming insurer must consent in writing to the jurisdiction of the courts of this Commonwealth and to the appointment of the commission as agent for service of process.

(1) The commission may also require that such consent be provided and included in each reinsurance agreement under the commission's jurisdiction.

(2) Nothing in this provision shall limit or in any way alter the capacity of parties to a reinsurance agreement to agree to alternative dispute resolution mechanisms, except to the extent such agreements are unenforceable under applicable insolvency or delinquency laws.

c. The assuming insurer must consent in writing to pay all final judgments, wherever enforcement is sought, obtained by a ceding insurer that have been declared enforceable in the territory where the judgment was obtained.

d. Each reinsurance agreement must include a provision requiring the assuming insurer to provide security in an amount equal to 100% of the assuming insurer's liabilities attributable to reinsurance ceded pursuant to that agreement if the assuming insurer resists enforcement of a final judgment that is enforceable under the law of the jurisdiction in which it was obtained or a properly enforceable arbitration award, whether obtained by the ceding insurer or by its legal successor on behalf of its estate, if applicable.

e. The assuming insurer must confirm that it is not presently participating in any solvent scheme of arrangement, which involves this Commonwealth's ceding insurers, and agrees to notify the ceding insurer and the commission and to provide 100% security to the ceding insurer consistent with the terms of the scheme, should the assuming insurer enter into such a solvent scheme of arrangement. Such security shall be in a form consistent with the provisions of subsection D of § 38.2-1316.2 and subdivision 2 of § 38.2-1316.4 of the Code of Virginia and 14VAC5-300-120, 14VAC5-300-130, or 14VAC5-300-140.

f. The assuming insurer must agree in writing to meet the applicable information filing requirements as set forth in subdivision 5 of this subsection.

5. The assuming insurer or its legal successor must provide, if requested by the commission, on behalf of itself and any legal predecessors, the following documentation to the commission:

a. For the two years preceding entry into the reinsurance agreement and on an annual basis thereafter, the assuming insurer's annual audited financial statements in accordance with the applicable law of the jurisdiction of its head office or domiciliary jurisdiction, as applicable, including the external audit report;

b. For the two years preceding entry into the reinsurance agreement, the solvency and financial condition report or actuarial opinion if filed with the assuming insurer's supervisor;

c. Prior to entry into the reinsurance agreement and not more than semi-annually thereafter, an updated list of all disputed and overdue reinsurance claims outstanding for 90 days or more, regarding reinsurance assumed from ceding insurers domiciled in the United States; and

d. Prior to entry into the reinsurance agreement and not more than semi-annually thereafter, information regarding the assuming insurer's assumed reinsurance by ceding insurer, ceded reinsurance by the assuming insurer, and reinsurance recoverable on paid and unpaid losses by the assuming insurer to allow for the evaluation of the criteria set forth in subdivision 6 of this subsection.

6. The assuming insurer must maintain a practice of prompt payment of claims under reinsurance agreements. The lack of prompt payment will be evidenced if any of the following criteria is met:

a. More than 15% of the reinsurance recoverables from the assuming insurer are overdue and in dispute as reported to the commission;

b. More than 15% of the assuming insurer's ceding insurers or reinsurers have overdue reinsurance recoverable on paid losses of 90 days or more that are not in dispute and that exceed for each ceding insurer $100,000, or as otherwise specified in a covered agreement; or

c. The aggregate amount of reinsurance recoverable on paid losses that are not in dispute, but are overdue by 90 days or more, exceeds $50 million, or as otherwise specified in a covered agreement.

7. The assuming insurer's supervisory authority must confirm to the commission on an annual basis that the assuming insurer complies with the requirements set forth in subdivisions 2 and 3 of this subsection.

8. Nothing in this provision precludes an assuming insurer from providing the commissioner with information on a voluntary basis.

D. The commissioner shall timely create and publish a list of reciprocal jurisdictions.

1. A list of reciprocal jurisdictions is published through the NAIC Committee Process. The commission's list shall include any reciprocal jurisdiction as defined under subdivisions B 1 and B 2 of this section and shall consider any other reciprocal jurisdiction included on the NAIC list. The commission may approve a jurisdiction that does not appear on the NAIC list of reciprocal jurisdictions as provided by applicable law or regulation or in accordance with criteria published through the NAIC Committee Process.

2. The commission may remove a jurisdiction from the list of reciprocal jurisdictions upon a determination that the jurisdiction no longer meets one or more of the requirements of a reciprocal jurisdiction, as provided by applicable law or regulation or in accordance with a process published through the NAIC Committee Process, except that the commission shall not remove from the list a reciprocal jurisdiction as defined under subdivisions B 1 and B 2 of this section. Upon removal of a reciprocal jurisdiction from this list credit for reinsurance ceded to an assuming insurer domiciled in that jurisdiction shall be allowed if otherwise allowed pursuant to Article 3.1 (§ 38.2-1316.1 et seq.) of Chapter 13 of Title 38.2 of the Code of Virginia or this chapter.

E. The commission shall timely create and publish a list of assuming insurers that have satisfied the conditions set forth in this section and to which cessions shall be granted credit in accordance with this section.

1. If an NAIC accredited jurisdiction has determined that the conditions set forth in subsection C of this section have been met, the commission has the discretion to defer to that jurisdiction's determination and add such assuming insurer to the list of assuming insurers to which cessions shall be granted credit in accordance with this subsection. The commission may accept financial documentation filed with another NAIC accredited jurisdiction or with the NAIC in satisfaction of the requirements of subsection C of this section.

2. When requesting that the commission defer to another NAIC accredited jurisdiction's determination, an assuming insurer must submit a properly executed Form RJ-1 and additional information as the commission may require. A state that has received such a request will notify other states through the NAIC Committee Process and provide relevant information with respect to the determination of eligibility.

F. If the commission determines that an assuming insurer no longer meets one or more of the requirements under this section, the commission may revoke or suspend the eligibility of the assuming insurer for recognition under this section.

1. While an assuming insurer's eligibility is suspended, no reinsurance agreement issued, amended, or renewed after the effective date of the suspension qualifies for credit except to the extent that the assuming insurer's obligations under the contract are secured in accordance with 14VAC5-300-110.

2. If an assuming insurer's eligibility is revoked, no credit for reinsurance may 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 contract are secured in a form acceptable to the commission and consistent with the provisions of 14VAC5-300-110.

G. Before denying statement credit or imposing a requirement to post security with respect to subsection F of this section or adopting any similar requirement that will have substantially the same regulatory impact as security, the commission shall:

1. Communicate with the ceding insurer, the assuming insurer, and the assuming insurer's supervisory authority that the assuming insurer no longer satisfies one of the conditions listed in subsection C of this section;

2. Provide the assuming insurer with 30 days from the initial communication to submit a plan to remedy the defect and 90 days from the initial communication to remedy the defect, except in exceptional circumstances in which a shorter period is necessary for policyholder and other consumer protection;

3. After the expiration of the 90-day or shorter period to remedy the defect, as set out in subdivision 2 of this subsection, if the commission determines that no or insufficient action was taken by the assuming insurer, the commission may impose any of the requirements as set out in this subsection; and

4. Provide a written explanation to the assuming insurer of any of the requirements set out in this subsection.

H. If subject to a legal process of rehabilitation, liquidation, or conservation, as applicable, the ceding insurer or its representative may seek and, if determined appropriate by the court in which the proceedings are pending, may obtain an order requiring that the assuming insurer post security for all outstanding liabilities.

14 Va. Admin. Code § 5-300-97

Adopted, Virginia Register Volume 36, Issue 23, eff. 7/1/2020.

Statutory Authority: §§ 12.1-13 and 38.2-1316.2 of the Code of Virginia.