SESSION OF 2021
SUPPLEMENTAL NOTE ON HOUSE BILL NO. 2134
As Amended by Senate Committee on Financial
Institutions and Insurance

Brief*
HB 2134, as amended, would codify the National
Association of Insurance Commissioners (NAIC) Credit for
Reinsurance Model Regulation (Model Regulation) into
statute and amend the Kansas credit for reinsurance statute
to add another condition under which a ceding insurer is
permitted credit for reinsurance. The bill also would amend
the Insurance Holding Company Act by adding definitions for
“group-wide supervisor” and “internationally active insurance
group,” requiring the filing with the Commissioner of
Insurance (Commissioner) of a confidential notice of
proposed divestiture by a controlling person of a domestic
insurer and a preacquisition notice by the acquiring person,
and adding amendments or modifications of affiliate
agreements to transactions that may not be entered into
without advance written notification to the Commissioner of
the insurer’s intent to enter into such transaction. The bill also
would make technical amendments.
The bill would be in effect upon publication in the
Kansas Register.

Codification of NAIC Credit for Reinsurance Model
Regulation (New Section 1)
[Note: Reinsurance is often referred to as “insurance for
insurance companies” and serves as a contract of indemnity
between a reinsurer and insurer. In this contractual
____________________
*Supplemental notes are prepared by the Legislative Research
Department and do not express legislative intent. The supplemental
note and fiscal note for this bill may be accessed on the Internet at
http://www.kslegislature.org
arrangement, the insurance company (termed “the cedent” or
“ceding insurer”) transfers the risk to the reinsurer, which
would assume some or all of the policies issued by the ceding
insurer. This Supplemental Note reviews the Model
Regulation, as follows.]
Purpose
The stated purpose of the Model Regulation is that the
actions and information required are necessary and
appropriate in the public interest and for the protection of the
ceding insurers in Kansas.
Severability
If any provision in the Model Regulation, or the
application of the provision to any person or circumstance, is
found to be invalid, the remainder of the act, or the
application of the provision to persons or circumstances other
than those to which it is held invalid, would not be affected.
Credit for Reinsurance—Reinsurer Licensed in Kansas
Pursuant to the Kansas credit for reinsurance statute,
the Commissioner would be required to allow credit for the
reinsurance ceded by a domestic insurer to an assuming
insurer licensed in Kansas as of any date in which statutory
financial statement credit for reinsurance is claimed.
Credit for Reinsurance—Accredited Reinsurers
Pursuant to the Kansas credit for reinsurance statute,
the Commissioner would be required to allow credit for
reinsurance ceded by a domestic insurer to an assuming
insurer accredited as a reinsurer in Kansas as of the date in
which statutory financial statement credit for reinsurance is
claimed. The Model Regulation would set out the filing
requirements of an accredited reinsurer and the requirement
2- 2134
to maintain a surplus with regard to policyholders of not less
than $20 million or to obtain approval of the Commissioner
based on a finding the accredited reinsurer has adequate
financial capacity to meet its reinsurance obligations and is
otherwise qualified to assume reinsurance from domestic
insurers.
If the Commissioner determines the assuming insurer
failed to meet or maintain any of the above qualifications, the
Commissioner would be permitted to suspend or revoke the
accreditation, upon written notice and opportunity for hearing.
If an assuming insurer’s accreditation was revoked, or if the
reinsurance was ceded while the assuming insurer’s
accreditation was under suspension, a domestic ceding
insurer would not be allowed credit.
Credit for Reinsurance—Reinsurer Domiciled in Another
State
Pursuant to the Kansas credit for reinsurance statute,
the Commissioner would be required to allow credit for
reinsurance ceded by a domestic insurer to an assuming
insurer that, as of a date on which statutory financial
statement credit for reinsurance is claimed:
● Is domiciled in or, in the case of a U.S. branch of
an alien assuming insurer, is entered through a
state with credit for reinsurance standards similar
to those applicable in Kansas;
● Maintains a surplus as previously described; and
● Files a properly executed form with the
Commissioner as evidence of submission to this
state’s authority to examine its books and records.
The provisions relating to the surplus would not apply to
reinsurance ceded and assumed under pooling arrangements
among insurers in the same holding company system. The
term “substantially similar,” as referenced in this section,
3- 2134
would mean credit for reinsurance standards the
Commissioner determines are equal to or exceed the
standards of the Kansas credit for reinsurance statute and
those of this section.
Credit for Reinsurance—Reinsurers Maintaining Trust Funds
In accordance with the Kansas credit for reinsurance
statute, the Commissioner would be required to allow credit
for reinsurance ceded by a domestic insurer to an assuming
insurer that, as of any date on which statutory financial
statement credit for reinsurance is claimed, and for as long as
credit for reinsurance is claimed, maintains a trust fund in an
amount prescribed by the Model Regulation in a qualified
U.S. financial institution for the payment of the valid claims of
its U.S.-domiciled ceding insurers. The assuming insurer
would be required to report annually to the Commissioner
substantially the same information required to be reported on
the NAIC annual statement form by licensed insurers, to allow
the Commissioner to determine the sufficiency of the trust
fund.
The Model Regulation would set out the trust fund
requirements applicable to the following categories of
assuming insurers: a single assuming insurer; an assuming
insurer that has permanently discontinued underwriting new
business secured by the trust for at least three full years; a
group including incorporated and individual unincorporated
underwriters; and a group of incorporated insurers under
common administration whose members possess aggregate
policyholders surplus of $10 billion, calculated and reported
as outlined in the bill, and that has continuously transacted an
insurance business outside the U.S. for at least three years
immediately prior to making application for accreditation.
The Model Regulation would provide that credit for
reinsurance would not be granted unless the form of the trust
and any amendments to the trust have been approved by
either the commissioner of the state where the trust is

4- 2134
domiciled or the commissioner of another state who has
accepted responsibility for regulatory oversight of the trust.
The Model Regulation would require the form of the trust and
any trust amendments be filed with the commissioner of
every state in which the ceding insurer beneficiaries of the
trust are domiciled. Provisions to be included in the trust
instrument would be as outlined in this subsection.
If the trust fund is inadequate because it contains an
amount less than required or if the grantor of the trust has
been declared insolvent or placed into receivership,
rehabilitation, liquidation, or similar proceedings under the
laws of its state or country of domicile, the trustee would be
required to comply with an order of the commissioner with
regulatory oversight over the trust or with an order of a court
of competent jurisdiction directing the trustee to transfer to
the commissioner with regulatory oversight over the trust or
other designated receiver all of the assets of the trust fund.
Such assets would be distributed according to claims filed
with and valued by the commissioner with regulatory
oversight over the trust in accordance with the laws of the
state in which the trust is domiciled applicable to the
liquidation of domestic insurance companies. Trust assets not
necessary to satisfy the claims of U.S. beneficiaries of the
trust would be returned to the trustee for distribution
according to the trust agreement. The grantor would be
required to waive any right otherwise available to it under
U.S. law that is consistent with this provision.
The term “liabilities” would mean the assuming insurer’s
gross liabilities attributable to reinsurance ceded by U.S.-
domiciled insurers, excluding liabilities that are otherwise
secured by acceptable means. The liabilities included for
business ceded by domestic insurers authorized to write
accident and health and property and casualty insurance and
for business ceded by domestic insurers authorized to write
life, health, and annuity insurance would be as listed in the
Model Regulation.


5- 2134
 The Model Regulation would address the valuation of
assets deposited in trusts established pursuant to the Kansas
credit for reinsurance statute, the nature of the trust assets
allowed, the limitations on foreign investments and securities
denominated in foreign currencies in the trust, and restriction
on allowed trust investments. Requirements for a mortgage-
related security would be specified. The terms “mortgage-
related security” and “promissory note” would be defined.
Equity interests. The Model Regulation would address
permissible equity interests involving the following:
investments in common shares or partnership interests of a
solvent U.S. institution, if certain requirements were met;
investments in common shares of a solvent institution
organized under the laws of a country that is a member of the
Organization for Economic Cooperation and Development, if
certain requirements were met; an investment in or loan upon
any one institution’s outstanding equity interest not exceeding
a specified percentage of the assets of the trust; and
obligations issued, assumed, or guaranteed by a
multinational development bank, provided the obligations are
rated “A,” or higher, or the equivalent, by a rating agency
recognized by the securities valuation office of the NAIC.
Investment companies. The Model Regulation would
provide that securities of an investment company registered
pursuant to the Investment Company Act of 1940 would be
permissible investments if the investment company met
certain investment requirements. The bill would prohibit
investments made by a trust in investment companies from
exceeding certain limitations.
Letters of credit. A letter of credit would qualify as an
asset of the trust only if:
● The trustee has the right and obligation pursuant to
the deed of trust or some other binding agreement
approved by the Commissioner to immediately
draw down the full amount of the letter of credit and
hold the proceeds in trust for the beneficiaries of
6- 2134
 the trust if the letter of credit will otherwise expire
without being renewed or replaced; and
● The trust agreement provides that the trustee is
liable for its negligence, willful misconduct, or lack
of good faith. The failure to draw against the letter
of credit when such draw would be required would
be deemed to be negligence or willful misconduct.
Credit for Reinsurance—Certified Insurers
Pursuant to the Kansas credit for reinsurance statute,
the Commissioner would be required to allow credit for
reinsurance ceded by a domestic insurer to an assuming
insurer that has been certified as a reinsurer in Kansas at all
times for which the statutory financial statement credit for
reinsurance is claimed. The credit allowed would be based
upon the security held by or on behalf of the ceding insurer in
accordance with a rating assigned to the certified insurer by
the Commissioner. The bill would require the security to be in
a form consistent with requirements of the Kansas credit for
reinsurance statute. The amount of security required in order
for full credit to be allowed would have to correspond with the
requirements outlined.
Certification procedure. The process for certification
would require the posting of the application for certification on
the Kansas Insurance Department (Department) website,
including instructions on how members of the public may
respond to the application, the timing for the Commissioner’s
final action on the application, and written notice to the
assuming insurer that made the application and has been
approved as a certified reinsurer that contains the rating
assigned to the certified reinsurer. The Commissioner would
be required to publish a list of all certified reinsurers and their
ratings. To be eligible for certification, the assuming insurer
would be required to meet certain requirements, as outlined.
Each certified reinsurer would be rated on a legal entity basis,
with due consideration being given to the group rating where
appropriate. However, an association, including incorporated
7- 2134
and individual unincorporated underwriters, that has been
approved to do business as a single certified reinsurer would
be permitted to be evaluated on the basis of its group rating.
Multiple factors allowed to be considered as part of the
evaluation process are described.
Based on the analysis of one of the factors conducted
pertaining to a certified reinsurer’s reputation for prompt
payment of claims, the Commissioner would be permitted to
make appropriate adjustments to the security the certified
reinsurer would be required to post to protect its liabilities to
U.S. ceding insurers. If certain conditions exist, the
Commissioner would be required, at a minimum, to increase
the security the certified insurer is required to post by one
rating level.
The assuming insurer would be required to submit a
specified form as evidence of its submission to the jurisdiction
of the State of Kansas, appointment of the Commissioner as
an agent for service of process in Kansas, and agreement to
provide security for 100 percent of the assuming insurer’s
liabilities attributable to the reinsurance ceded by U.S ceding
insurers if the assuming insurer resists enforcement of a final
U.S. judgment. The Commissioner would be prohibited from
certifying any assuming insurer that is domiciled in a
jurisdiction the Commissioner has determined does not
adequately and promptly enforce final U.S. judgments or
arbitration awards.
The certified reinsurer would be required to agree to
meet applicable information filing requirements as determined
by the Commissioner, both with respect to an initial
application and on an ongoing basis. Information submitted
by certified reinsurers that is not public information subject to
disclosure would be exempted from disclosure under the
Kansas Open Records Act and would be withheld from public
disclosure. The provisions providing for the confidentiality of
public records would expire on July 1, 2026, unless the
Legislature reviews and continues such provisions. The
applicable information filing requirements are described.
8- 2134
 Qualified jurisdictions. If the Commissioner
determines, upon conducting an evaluation with respect to
the reinsurance supervisory system of any non-U.S.
assuming insurer, the jurisdiction qualifies to be recognized
as a qualified jurisdiction, the Commissioner would be
required to publish notice and evidence of such recognition.
The Commissioner would be permitted to establish a
procedure to withdraw recognition of those jurisdictions that
are no longer qualified.
The Commissioner would be required to evaluate the
reinsurance supervisory system of a non-U.S. jurisdiction,
both initially and on an ongoing basis, to determine whether
the domiciliary jurisdiction of the non-U.S. assuming insurer is
eligible to be recognized as a qualified jurisdiction and
consider the rights, benefits, and the extent of reciprocal
recognition afforded by the non-U.S. jurisdiction to reinsurers
licensed and domiciled in the United States. The
Commissioner would be required to determine the
appropriate approach for evaluating the qualifications of such
jurisdictions and create and publish a list of jurisdictions
whose reinsurers the Commissioner would be allowed to
approve as eligible for certification. A qualified jurisdiction
would be required to agree to share information and
cooperate with the Commissioner with respect to all certified
reinsurers domiciled in that jurisdiction. A list of additional
factors to be considered in determining whether to recognize
a qualified jurisdiction is included.
In determining qualified jurisdictions, the Commissioner
would be required to consider the list of qualified jurisdictions
published through the NAIC committee process. If the
Commissioner approves a jurisdiction as qualified that is not
on the list of qualified jurisdictions, the Commissioner would
be required to provide thoroughly documented justification
with respect to the criteria provided in the list of other factors
to be considered in making that determination. U.S.
jurisdictions meeting the requirements for accreditation under
the NAIC standards and accreditation program would be
recognized as qualified jurisdictions.
9- 2134
 Recognition of certification issued by a NAIC
accredited jurisdi