HOUSE OF REPRESENTATIVES STAFF ANALYSIS
BILL #: HB 733 Credit for Reinsurance
SPONSOR(S): Fetterhoff
TIED BILLS: IDEN./SIM. BILLS: SB 728
REFERENCE ACTION ANALYST STAFF DIRECTOR or
BUDGET/POLICY CHIEF
1) Insurance & Banking Subcommittee 16 Y, 0 N Fortenberry Luczynski
2) State Administration & Technology 14 Y, 0 N Lee Topp
Appropriations Subcommittee
3) Commerce Committee 24 Y, 0 N Fortenberry Hamon
SUMMARY ANALYSIS
Reinsurance is a transaction between a primary insurer (ceding insurer) and a reinsurer (assuming insurer)
whereby the assuming insurer agrees to cover all or part of the ceding insurer’s losses or loss adjustment
expenses in exchange for a premium. Because of the impact of hurricanes in Florida, the catastrophe
protection provided by reinsurance is a significant reason for ceding insurers’ purchase of reinsurance within
the state. Most reinsurance that United States (U.S.) ceding insurers acquire is placed with non-U.S. assuming
insurers. Because state insurance regulators do not regulate non-U.S. insurers or assuming insurers, the
purchase of reinsurance by Florida insurers from such non-U.S. companies provides concern and challenges
for state insurance regulators. Depending on their status within Florida, assuming insurers may be authorized
or unauthorized. When an assuming insurer is an unauthorized assuming insurer within Florida, the Florida
Office of Insurance Regulation (OIR) does not have direct regulatory authority over that assuming insurer. In
order to exercise some indirect regulatory authority over these assuming insurers, OIR limits the ceding
insurer’s credit for reinsurance unless the assuming insurer meets certain criteria. Credit for reinsurance
means that a ceding insurer is permitted under statutory accounting rules to recognize the reinsurance as an
asset or as a reduction from liability for the amount of the ceded liability or risk transferred.
The bill amends the reinsurance law to add criteria that an assuming insurer must meet in order for a ceding
insurer to be given credit for reinsurance. These criteria include having its head office or its domicile, and being
licensed in, a reciprocal jurisdiction, maintaining minimum capital and surplus, meeting minimum solvency or
capital ratios, providing prompt notice to OIR if it falls below minimum requirements or has legal action taken
against it, responding to OIR’s document requests, and maintaining a practice of prompt payment of claims.
The bill also specifies certain elements that an assuming insurer must include in its reinsurance agreements in
order for the ceding insurer to take credit for reinsurance. The bill requires that an assuming insurer’s
regulatory authority confirm to OIR that the assuming insurer has complied with the capital and surplus
requirements and solvency or capital ratio requirements in the bill. It also establishes that a ceding insurer may
only take credit for reinsurance agreements entered into, amended, or renewed on or after the date at which
the assuming insurer has met the criteria in the bill. Additionally, OIR may suspend or revoke the assuming
insurer’s eligibility if the assuming insurer does not continue to meet the mandatory criteria.
If insurers are able to take credit for reinsurance for additional reinsurance transactions, they will be able to
recognize additional assets or reductions in liability. The greater an insurer’s assets or lower its liabilities, the
higher the insurer’s surplus. The insurer’s surplus provides a measure of financial stability and provides a
source of funds in the event that reserves are inadequate.
The bill has no fiscal impact on state or local government revenues or expenditures. It has no known direct
economic impact on the private sector.
The bill has an effective date of July 1, 2021.
This document does not reflect the intent or official position of the bill sponsor or House of Representatives.
STORAGE NAME: h0733e.COM
DATE: 3/16/2021
 FULL ANALYSIS
I. SUBSTANTIVE ANALYSIS
A. EFFECT OF PROPOSED CHANGES:
Reinsurance
Reinsurance is a transaction between a ceding insurer1 and an assuming insurer whereby the
assuming insurer agrees to cover all or part of the ceding insurer’s losses or loss adjustment expenses
in exchange for a premium. The purposes of reinsurance include increasing capacity, stabilizing
underwriting results, financing, providing catastrophe protection, withdrawing from a line or class of
business, spreading risk, and obtaining expertise.2 Because of the impact of hurricanes in Florida, the
catastrophe protection provided by reinsurance is a significant reason for ceding insurers’ purchase of
reinsurance within the state. While the purchase of reinsurance creates a contractual relationship
between the ceding insurer and the assuming insurer, it does not modify the relationship between the
ceding insurer and its policyholders.3 Therefore, the ceding insurer remains obligated to pay
policyholder claims and only the ceding insurer may recover from the assuming insurer unless an
applicable reinsurance contract specifies otherwise.4
Most reinsurance that United States (U.S.) ceding insurers acquire is placed with non-U.S. assuming
insurers. In fact, in 2018, offshore and non-U.S.-owned5 assuming insurers assumed 88.9 percent of
insurance premiums ceded by U.S. insurers.6 The availability of non-U.S. reinsurance contributes to
global diversification of risk, provides claims relief to U.S. insurers, and mitigates the financial impact of
catastrophes.7 Even though reinsurance provides benefits, because the U.S. state insurance
regulators do not regulate non-U.S. insurers or assuming insurers, the purchase of reinsurance by U.S.
insurers from such non-U.S. companies provides concern and challenges for state insurance
regulators.
Regulation of Reinsurance
Direct Regulation of Authorized Assuming Insurers and Credit for Reinsurance
Regulations and requirements for reinsurance transactions in Florida are provided in s. 624.610, F.S.,
and ch. 69O-144, F.A.C. The Florida Office of Insurance Regulation (OIR)8, directly regulates
authorized assuming insurers9 who are domiciled and licensed in Florida and assuming insurers
licensed in Florida who are domiciled in other states.10 Under current law, if a Florida insurer cedes
reinsurance to an assuming insurer who is authorized to transact insurance or reinsurance in Florida
1 National Association of Insurance Commissioners, https://content.naic.org/consumer_glossary.htm#R (last visited Feb. 22, 2021). A
ceding insurer is an insurer that transfers risk assumed from policyholders to an assuming insurer. The ceding insurer and assuming
insurer may also be referred to as the primary insurer and the reinsurer, respectively. Reinsurance is also colloquially referred to as
“insurance for insurers” because of the risk transfer from one insurer to another.
2
National Association of Insurance Commissioners, https://content.naic.org/cipr_topics/topic_reinsurance.htm (last visited Feb. 22,
2021).
3
See IRMI, In Defense of Reinsurance, https://www.irmi.com/articles/expert-commentary/in-defense-of-reinsurance (last visited Feb.
22, 2021).
4
Id.
5
In the insurance context, a company formed under laws other than those of a U.S. jurisdiction is known as an alien insurer. See s.
624.06, F.S.
6
Reinsurance Association of America, Offshore Reinsurance in the US Market: 2018 Data,
https://www.reinsurance.org/RAA/Industry_Data_Center/Offshore_Report/Offshore_Report_2018_Data.html (last visited Feb. 22,
2021).
7
International Association of Insurance Supervisors, Reinsurance and Financial Stability,
https://www.iaisweb.org/file/34046/reinsurance-and-financial-stability (last visited Feb. 22, 2021).
8
Statutes also refer to OIR as the office.
9
Authorized assuming insurers are licensed or accredited to provide reinsurance in a particular state. See s. 624.610, F.S.
10
S. 624.610, F.S.
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 and meets other specified requirements, the ceding insurer is permitted to take credit for that
reinsurance on its books.11
Indirect Regulation of Unauthorized Assuming insurers and Credit for Reinsurance
When an assuming insurer is not an authorized assuming insurer within Florida, OIR does not have
direct regulatory authority over that assuming insurer. Pursuant to s. 624.610, F.S., and in order to
exercise some indirect regulatory authority over these assuming insurers, OIR limits the ceding
insurer’s credit for reinsurance unless the assuming insurer posts acceptable collateral or security in
the amount of the assuming insurer’s obligations under the reinsurance agreement.12
National Association of Insurance Commissioners
National Association of Insurance Commissioners Authority, Accreditation, and Model Laws
The National Association of Insurance Commissioners (NAIC) is a “standard-setting and regulatory
support organization created and governed by the chief insurance regulators from the 50 states, the
District of Columbia, and five U.S. territories.”13 While the NAIC does not have actual regulatory
authority, it allows state regulators to establish standards and best practices, to engage in peer review,
and to coordinate regulatory oversight.
The NAIC also maintains an accreditation program that considers key financial authorities and
responsibilities of state insurance regulators that warrant national consistency among jurisdictions in
order to improve oversight of multi-state insurers and reduce the cost of inefficiencies that is passed on
to policyholders.14 As of November 2019, all 50 states, the District of Columbia and Puerto Rico were
accredited by the NAIC.15
The NAIC develops model laws and regulations to promote uniformity among jurisdictions and to
balance the needs of insurers operating in multiple jurisdiction with those of the applicable regulatory
frameworks.16 The model laws are considered best practices for insurance regulation and the
accreditation program requires compliance with certain model laws, including those that are solvency
related.17
Credit for Reinsurance Model Law and Regulation and the Covered Agreement
Among the NAIC model laws and regulations that have become part of the accreditation standards are
the Credit for Reinsurance Model Law #785 and Credit for Reinsurance Model Regulation #786
(MLMR), amendments to which are designed to modernize reinsurance regulation in the U.S.18 In 2017,
the U.S. entered the Bilateral Agreement Between the United States of America and the European
Union on Prudential Measures Regarding Insurance and Reinsurance (Covered Agreement).19 In
11
Credit for reinsurance means that a ceding insurer is permitted under statutory accounting rules to recognize the reinsurance as an
asset or as a reduction from liability for the amount of the ceded liability or risk transferred. IRMI,
https://www.irmi.com/term/insurance-definitions/credit-for-reinsurance (last visited Feb. 26, 2021). See also s. 624.610(3), F.S.
12
See s. 624.610(4), F.S.
13
National Association of Insurance Commissioners, https://content.naic.org/index_about.htm (last visited Feb. 26, 2021).
14
National Association of Insurance Commissioners, State Legislative Brief The NAIC Accreditation Program,
https://www.naic.org/documents/cmte_legislative_liaison_brief_accreditation.pdf (last visited Feb. 26, 2021).
15
Id.
16
National Association of Insurance Commissioners, NAIC Model Laws,
https://content.naic.org/cipr_topics/topic_naic_model_laws.htm (last visited Feb. 26, 2021).
17
National Association of Insurance Commissioners, Accreditation, https://content.naic.org/cipr_topics/topic_accreditation.htm (last
visited Feb. 26, 2021).
18
National Association of Insurance Commissioners, Revisions to the Credit for Reinsurance Model Law,
https://www.naic.org/documents/committees_e_reinsurance_related_reinsurance_model_law_160108.pdf (last visited Feb. 26, 2021).
19
U.S. Department of the Treasury, U.S. – EU Covered Agreement, https://home.treasury.gov/policy-issues/financial-markets-
financial-institutions-and-fiscal-service/federal-insurance-office/covered-agreements/us-eu-covered-agreement (last visited Feb. 26,
2021). Covered agreements are authorized under 31 U.S.C. §§ 313–314, and are written bilateral or multilateral agreements regarding
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 2019, the NAIC made revisions to MLMR in response to the Covered Agreement. In part, the Covered
Agreement commits the U.S. to phasing-out collateral requirements for European Union assuming
insurers by 2022.20 The Covered Agreement also exempts European Union assuming insurers from
current U.S. domiciliary requirements by creating a classification known as a reciprocal jurisdiction.21
Effect of the Bill
The changes to MLMR as a result of the Covered Agreement, necessitate that existing Florida law
regarding credit for reinsurance be amended. The bill creates new subsections within the reinsurance
statute regarding the circumstances under which ceding insurers can take credit for reinsurance. The
bill establishes that a ceding insurer will not be permitted to take credit for reinsurance when an
assuming insurer is not authorized or accredited to transact insurance or reinsurance in Florida unless
the assuming insurer agrees to the following in its reinsurance agreements:
 If the assuming insurer fails to perform its obligations under the reinsurance agreement, and at
the request of the ceding insurer, the assuming insurer shall submit to the jurisdiction of any
U.S. court of competent jurisdiction, comply with the requirements necessary to give that court
jurisdiction, and abide by the final decision of that court or any appellate court in the event of an
appeal.
 Designate the Florida Chief Financial Officer as its agent for service of process in a suit by a
ceding insurer.
The bill also provides that credit for reinsurance must be allowed when reinsurance is ceded to an
assuming insurer that meets all of the following criteria:
 The assuming insurer must be licensed in, and have its head office in or be domiciled in, a
reciprocal jurisdiction.
 The assuming insurer must have minimum capital and surplus as calculated by the
methodology of its domiciliary jurisdiction in the amount of $250 million or in a greater amount
specified by commission22 rule.
 The assuming insurer must have a minimum solvency or capital ratio as specified by the
commission.
 The assuming insurer must agree to provide prompt written notice to OIR if it falls below the
minimum requirements specified in the bill or if any regulatory action is taken against it for
serious noncompliance with applicable law.
 The assuming insurer must consent in writing to:
o submit to the jurisdiction of Florida courts;
o designate the Florida Chief Financial Officer as its agent for service or process or an
attorney to accept lawful process;
o pay all final judgments declared enforceable in the jurisdiction where the judgments
were obtained;
o include a provision in each reinsurance agreement that, where necessary, the assuming
insurer will provide security in the amount equal to 100 percent of the assuming insurer’s
liabilities attributable to reinsurance ceded pursuant to the agreement; and
insurance or reinsurance entered into between the U.S. and one or more foreign authorities to provide protections for insurance and
reinsurance consumers similar to those provided by state insurance regulators within U.S. jurisdictions.
20
U.S. Department of the Treasury, Statement of the United States on the Covered Agreement with the European Union,
https://ustr.gov/sites/default/files/files/US%20Covered%20Agreement.pdf (last visited Feb. 26, 2021).
21
Id. Model Law #785 defines a reciprocal jurisdiction as:
 A non-U.S. jurisdiction that is subject to an in-force covered agreement with the U.S., each within its legal authority, or in the
case of a covered agreement between the U.S. and the European Union, is a member state of the European Union;
 A U.S. jurisdiction that meets the requirements for accreditation under the NAIC financial standards and accreditation
program;
 A qualified jurisdiction, as determined by an insurance commissioner.
National Association of Insurance Commissioners, Credit for Reinsurance Model Law-785, https://www.naic.org/store/free/MDL-
785.pdf (last visited Feb. 26, 2021).
22
The commission referred to is the Financial Services Commission. Section 20.121(3), F.S., establishes that the Financial Services
Commission consists of the Governor, the Attorney General, the Chief Financial Officer, and th