HB 189
Department of Legislative Services
Maryland General Assembly
2020 Session
FISCAL AND POLICY NOTE
Third Reader
House Bill 189 (Delegate Dumais)
Economic Matters Finance
Insurance - Credit for Reinsurance Model Law - Revisions
This bill adopts changes made to the National Association of Insurance Commissioners
(NAIC) Model Act #785 “Credit for Reinsurance Model Law,” including defining
“covered agreement” and “reciprocal jurisdiction,” requiring creation and publication of a
list of reciprocal jurisdictions and authorized assuming insurers, and specifying when credit
must be allowed when reinsurance is ceded to an assuming insurer.
Fiscal Summary
State Effect: The bill does not materially affect State operations or finances.
Local Effect: None.
Small Business Effect: None.
Analysis
Bill Summary: “Covered agreement” means an agreement entered into under the federal
Dodd-Frank Wall Street Reform and Consumer Protection Act, 31 U.S.C. §§ 313 and 314
that (1) is currently in effect or in a period of provisional application and (2) addresses the
elimination of collateral requirements as a condition for entering into a reinsurance
agreement with a ceding insurer domiciled in the State or allowing the ceding insurer to
recognize credit for reinsurance (i.e., the ceding insurer can count amounts due from
reinsurers as assets or reductions from liability).
“Reciprocal jurisdiction” means a jurisdiction that is:
 outside the United States 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 (EU), is a member state of the
EU;
 in the United States and meets the requirements for accreditation under the NAIC
financial standards and accreditation program; or
 otherwise a qualified jurisdiction, as defined by State law and regulation.
Reciprocal Jurisdictions
The Insurance Commissioner must create and publish a list of reciprocal jurisdictions. The
list must include any reciprocal jurisdiction and consider any other reciprocal jurisdiction
included on NAIC’s list; however, the list may include a reciprocal jurisdiction not on that
list in accordance with regulations adopted by the Commissioner. A reciprocal jurisdiction
may not be removed from the list unless the jurisdiction no longer qualifies as a reciprocal
jurisdiction and the removal is done through a process established by regulation. If
removed, credit for reinsurance ceded to any assuming insurer from that jurisdiction must
be allowed.
Credit for Reinsurance and Authorized Assuming Insurers
Credit must be allowed when reinsurance is ceded to an assuming insurer that (1) has its
head office in or is domiciled in and licensed in a reciprocal jurisdiction; (2) has and
maintains on an ongoing basis minimum capital and surplus equivalents and balances, as
specified; (3) maintains a minimum solvency or capital ratio, as specified; (4) consents in
writing and agrees to various requirements related to legal jurisdiction, liabilities, the
payment of final judgments, and ethics; and (5) meets other specified requirements that
demonstrate the insurer’s competency as an insurer. Credit for reinsurance may only be
taken by an assuming insurer once it satisfies these requirements and only with respect to
specified losses incurred and reserves reported.
The Commissioner must create and publish a list of assuming insurers that have satisfied
these conditions. An assuming insurer may be added to the list if a NAIC-accredited
jurisdiction has added the assuming insurer to its list of assuming insurers or the assuming
insurer, on initial eligibility, submits specified information to the Commissioner. An
assuming insurer’s eligibility may be suspended or revoked under specified circumstances,
and the bill establishes procedures for the Commissioner to do so if necessary.
HB 189/ Page 2
Miscellaneous Provisions
If credit is not granted to a ceding insurer, the bill does not alter or impair the insurer’s
right to take credit for reinsurance, if otherwise authorized. Unless allowed by the
reinsurance agreement, the bill does not authorize an assuming insurer to withdraw or
reduce the security provided under any reinsurance agreement. A ceding insurer may seek
or obtain an order requiring the assuming insurer to post security for all outstanding
liabilities, as specified. The bill does not limit or alter the capacity of parties to a
reinsurance agreement to (1) agree on security requirements, as specified; (2) renegotiate
the agreement; (3) or agree to alternative dispute resolution mechanisms (unless those
agreements are unenforceable under insolvency or delinquency laws).
Current Law: In order to be certified by the Maryland Insurance Administration (MIA)
as a reinsurer in the State, an insurer must meet specified requirements, including that the
insurer (1) be domiciled and licensed to transact insurance or reinsurance in a qualified
jurisdiction; (2) maintain minimum capital and surplus in an amount the Commissioner
determines; (3) maintain financial strength ratings from two or more rating agencies, as
specified; and (4) agree to submit to the jurisdiction of the State.
The Commissioner must assign a rating to each certified reinsurer based on factors
considered relevant, giving due consideration to the financial strength ratings that have
been assigned by rating agencies. The Commissioner must publish a list of all certified
reinsurers and their ratings.
Background: Reinsurance is a contract of indemnity between a reinsurer and an insurer.
In this contract, an insurance company (ceding insurer), transfers risk to the reinsurance
company (assuming insurer), which assumes all or part of one or more insurance policies
issued by the ceding insurer. Reinsurers themselves may also buy reinsurance protection,
which is called retrocession. This is done to further spread risk and reduce the impact of
catastrophic loss events.
The purpose of the NAIC Model Act is to ensure adequate regulation of insurers and
reinsurers and adequate protection for those to whom they owe obligations. According to
MIA, the bill primarily implements the provisions of the covered agreements that were
entered into between the United States, the EU, and the United Kingdom. NAIC advises
that states must adopt the bill’s reinsurance changes by October 1, 2022, or face potential
federal preemption by the Federal Insurance Office.
Additional Information
Prior Introductions: None.
HB 189/ Page 3
Designated Cross File: SB 167 (Senator Kelley) - Finance.
Information Source(s): Maryland Insurance Administration; National Association of
Insurance Commissioners; Department of Legislative Services
Fiscal Note History: First Reader - February 3, 2020
rh/jc Third Reader - March 12, 2020
Analysis by: Richard L. Duncan Direct Inquiries to:
(410) 946-5510
(301) 970-5510
HB 189/ Page 4


Statutes affected:
Text - First - Insurance - Credit for Reinsurance Model Law - Revisions: 5-901 Insurance, 5-914 Insurance, 5-910 Insurance, 5-917 Insurance, 5-914 Insurance
Text - Third - Insurance - Credit for Reinsurance Model Law - Revisions: 5-901 Insurance, 5-914 Insurance, 5-910 Insurance, 5-917 Insurance, 5-901 Insurance, 5-914 Insurance