LB774 LB774
2020 2020
LEGISLATURE OF NEBRASKA
ONE HUNDRED SIXTH LEGISLATURE
SECOND SESSION
LEGISLATIVE BILL 774
Introduced by Williams, 36.
Read first time January 08, 2020
Committee: Banking, Commerce and Insurance
1 A BILL FOR AN ACT relating to insurance; to amend sections 44-416.06 and
2 44-416.09, Revised Statutes Cumulative Supplement, 2018; to change
3 requirements regarding credit for reinsurance as prescribed; to
4 harmonize provisions; and to repeal the original sections.
5 Be it enacted by the people of the State of Nebraska,
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1 Section 1. Section 44-416.06, Revised Statutes Cumulative
2 Supplement, 2018, is amended to read:
3 44-416.06 (1) Credit for reinsurance shall be allowed a domestic
4 ceding insurer as either an asset or a reduction from liability on
5 account of reinsurance ceded only when the reinsurer meets the
6 requirements of subsection (2), (3), (4), (5), (6), or (7), or (8) of
7 this section and any additional requirements contained in rules and
8 regulations adopted and promulgated by the Director of Insurance pursuant
9 to subsection (2) of section 44-416.09 relating to or setting forth (a)
10 the valuation of assets or reserve credits, (b) the amount and form of
11 security supporting reinsurance arrangements, or (c) the circumstances
12 pursuant to which credit will be reduced or eliminated. Except as
13 otherwise provided in section 44-224.11, credit shall be allowed under
14 subsection (2), (3), or (4) of this section only for cessions of those
15 kinds or classes of business which the assuming insurer is licensed or
16 otherwise permitted to write or assume in its state of domicile or, in
17 the case of a United States branch of an alien assuming insurer, in the
18 state through which it is entered and licensed to transact insurance or
19 reinsurance. Credit shall be allowed under subsection (4) or (5) of this
20 section only if the applicable requirements of subsection (9) (8) of this
21 section have been satisfied.
22 (2) Credit shall be allowed when the reinsurance is ceded to an
23 assuming insurer that is licensed to transact insurance in this state.
24 (3) Credit shall be allowed when the reinsurance is ceded to an
25 assuming insurer that is accredited by the Director of Insurance as a
26 reinsurer in this state. In order to be eligible for accreditation, a
27 reinsurer must:
28 (a) File with the director evidence of its submission to this
29 state's jurisdiction;
30 (b) Submit to this state's authority to examine its books and
31 records;
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1 (c) Be licensed to transact insurance or reinsurance in at least one
2 state, or in the case of a United States branch of an alien assuming
3 insurer, be entered through and licensed to transact insurance or
4 reinsurance in at least one state;
5 (d) File annually with the director a copy of its annual statement
6 filed with the insurance department of its state of domicile and a copy
7 of its most recent audited financial statement; and
8 (e) Demonstrate to the satisfaction of the director that it has
9 adequate financial capacity to meet its reinsurance obligations and is
10 otherwise qualified to assume reinsurance from domestic insurers. An
11 assuming insurer is deemed to meet this requirement as of the time of its
12 application if it maintains a surplus as regards policyholders in an
13 amount not less than twenty million dollars and its accreditation has not
14 been denied by the director within ninety days after submission of its
15 application.
16 (4)(a) Credit shall be allowed when the reinsurance is ceded to an
17 assuming insurer that is domiciled in, or in the case of a United States
18 branch of an alien assuming insurer is entered through, a state that
19 employs standards regarding credit for reinsurance substantially similar
20 to those applicable under this section and the assuming insurer or United
21 States branch of an alien assuming insurer:
22 (i) Maintains a surplus as regards policyholders in an amount not
23 less than twenty million dollars; and
24 (ii) Submits to the authority of this state to examine its books and
25 records.
26 (b) The requirement of subdivision (4)(a)(i) of this section does
27 not apply to reinsurance ceded and assumed pursuant to pooling
28 arrangements among insurers in the same holding company system.
29 (5)(a) Credit shall be allowed when the reinsurance is ceded to an
30 assuming insurer that maintains a trust fund in a qualified United States
31 financial institution for the payment of the valid claims of its United
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1 States ceding insurers and their assigns and successors in interest. To
2 enable the director to determine the sufficiency of the trust fund, the
3 assuming insurer shall report annually to the director information
4 substantially the same as that required to be reported on the National
5 Association of Insurance Commissioners Annual Statement form by licensed
6 insurers. The assuming insurer shall submit to examination of its books
7 and records by the director and bear the expense of examination.
8 (b)(i) Credit for reinsurance shall not be granted under this
9 subsection unless the form of the trust and any amendments to the trust
10 have been approved by:
11 (A) The commissioner of the state where the trust is domiciled; or
12 (B) The commissioner of another state who, pursuant to the terms of
13 the trust instrument, has accepted principal regulatory oversight of the
14 trust.
15 (ii) The form of the trust and any trust amendments also shall be
16 filed with the commissioner of every state in which the ceding insurer
17 beneficiaries of the trust are domiciled. The trust instrument shall
18 provide that contested claims shall be valid and enforceable upon the
19 final order of any court of competent jurisdiction in the United States.
20 The trust shall vest legal title to its assets in its trustees for the
21 benefit of the assuming insurer's United States ceding insurers, their
22 assigns, and successors in interest. The trust and the assuming insurer
23 shall be subject to examination as determined by the director.
24 (iii) The trust shall remain in effect for as long as the assuming
25 insurer has outstanding obligations due under the reinsurance agreements
26 subject to the trust. No later than February 28 of each year the trustee
27 of the trust shall report to the director in writing the balance of the
28 trust and listing the trust's investments at the preceding year end and
29 shall certify the date of termination of the trust, if so planned, or
30 certify that the trust will not expire prior to the following December
31 31.
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1 (c) The following requirements apply to the following categories of
2 assuming insurer:
3 (i) The trust fund for a single assuming insurer shall consist of
4 funds in trust in an amount not less than the assuming insurer's
5 liabilities attributable to reinsurance ceded by United States ceding
6 insurers and, in addition, the assuming insurer shall maintain a trusteed
7 surplus of not less than twenty million dollars except as provided in
8 subdivision (5)(c)(ii) of this section;
9 (ii) At any time after the assuming insurer has permanently
10 discontinued underwriting new business secured by the trust for at least
11 three full years, the commissioner with principal regulatory oversight of
12 the trust may authorize a reduction in the required trusteed surplus, but
13 only after a finding, based on an assessment of the risk, that the new
14 required surplus level is adequate for the protection of United States
15 ceding insurers, policyholders, and claimants in light of reasonably
16 foreseeable adverse loss development. The risk assessment may involve an
17 actuarial review, including an independent analysis of reserves and cash
18 flows, and shall consider all material risk factors, including when
19 applicable the lines of business involved, the stability of the incurred
20 loss estimates, and the effect of the surplus requirements on the
21 assuming insurer's liquidity or solvency. The minimum required trusteed
22 surplus may not be reduced to an amount less than thirty percent of the
23 assuming insurer's liabilities attributable to reinsurance ceded by
24 United States ceding insurers covered by the trust; and
25 (iii)(A) In the case of a group including incorporated and
26 individual unincorporated underwriters:
27 (I) For reinsurance ceded under reinsurance agreements with an
28 inception, amendment, or renewal date on or after January 1, 1993, the
29 trust shall consist of a trusteed account in an amount not less than the
30 respective underwriters' several liabilities attributable to business
31 ceded by United States domiciled ceding insurers to any underwriter of
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1 the group;
2 (II) For reinsurance ceded under reinsurance agreements with an
3 inception date on or before December 31, 1992, and not amended or renewed
4 after that date, notwithstanding the other provisions of sections
5 44-416.05 to 44-416.10, the trust shall consist of a trusteed account in
6 an amount not less than the respective underwriters' several insurance
7 and reinsurance liabilities attributable to business written in the
8 United States; and
9 (III) In addition to these trusts, the group shall maintain in trust
10 a trusteed surplus of which one hundred million dollars shall be held
11 jointly for the benefit of the United States domiciled ceding insurers of
12 any member of the group for all years of account;
13 (B) The incorporated members of the group shall not be engaged in
14 any business other than underwriting as a member of the group and shall
15 be subject to the same level of regulation and solvency control by the
16 group's domiciliary regulator as are the unincorporated members; and
17 (C) Within ninety days after its financial statements are due to be
18 filed with the group's domiciliary regulator, the group shall provide to
19 the director an annual certification by the group's domiciliary regulator
20 of the solvency of each underwriter member, or if a certification is
21 unavailable, financial statements, prepared by independent public
22 accountants, of each underwriter member of the group.
23 (6)(a) Credit shall be allowed when the reinsurance is ceded to an
24 assuming insurer that has been certified by the director as a reinsurer
25 in this state and secures its obligations in accordance with the
26 requirements of this subsection.
27 (b) In order to be eligible for certification, the assuming insurer
28 shall meet the following requirements:
29 (i) The assuming insurer must be domiciled and licensed to transact
30 insurance or reinsurance in a qualified jurisdiction, as determined by
31 the director pursuant to subdivision (6)(d) of this section;
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1 (ii) The assuming insurer must maintain minimum capital and surplus,
2 or its equivalent, in an amount to be determined by the director pursuant
3 to rules and regulations;
4 (iii) The assuming insurer must maintain financial strength ratings
5 from two or more rating agencies deemed acceptable by the director
6 pursuant to rules and regulations;
7 (iv) The assuming insurer must agree to submit to the jurisdiction
8 of this state, appoint the director as its agent for service of process
9 in this state, and agree to provide security for one hundred percent of
10 the assuming insurer's liabilities attributable to reinsurance ceded by
11 United States ceding insurers if it resists enforcement of a final United
12 States judgment;
13 (v) The assuming insurer must agree to meet applicable information
14 filing requirements as determined by the director, both with respect to
15 an initial application for certification and on an ongoing basis; and
16 (vi) The assuming insurer must satisfy any other requirements for
17 certification deemed relevant by the director.
18 (c) An association including incorporated and individual
19 unincorporated underwriters may be a certified reinsurer. In order to be
20 eligible for certification, in addition to satisfying requirements of
21 subdivision (6)(b) of this section:
22 (i) The association shall satisfy its minimum capital and surplus
23 requirements through the capital and surplus equivalents, net of
24 liabilities, of the association and its members, which shall include a
25 joint central fund that may be applied to any unsatisfied obligation of
26 the association or any of its members, in an amount determined by the
27 director to provide adequate protection;
28 (ii) The incorporated members of the association shall not be
29 engaged in any business other than underwriting as a member of the
30 association and shall be subject to the same level of regulation and
31 solvency control by the association's domiciliary regulator as are the
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1 unincorporated members; and
2 (iii) Within ninety days after its financial statements are due to
3 be filed with the association's domiciliary regulator, the association
4 shall provide to the director an annual certification by the
5 association's domiciliary regulator of the solvency of each underwriter
6 member or, if a certification is unavailable, financial statements,
7 prepared by independent public accountants, of each underwriter member of
8 the association.
9 (d)(i) The director shall create and publish a list of qualified
10 jurisdictions under which an assuming insurer licensed and domiciled in
11 such jurisdiction is eligible to be considered for certification by the
12 director as a certified reinsurer.
13 (ii) In order to determine whether the domiciliary jurisdiction of a
14 non-United-States assuming insurer is eligible to be recognized as a
15 qualified jurisdiction, the director shall evaluate the appropriateness
16 and effectiveness of the reinsurance supervisory system of the
17 jurisdiction, both initially and on an ongoing basis, and consider the
18 rights, benefits, and the extent of reciprocal recognition afforded by
19 the non-United-States jurisdiction to reinsurers licensed and domiciled
20 in the United States. A qualified jurisdiction must agree to share
21 information and cooperate with the director with respect to all certified
22 reinsurers domiciled within that jurisdiction. A jurisdiction may not be
23 recognized as a qualified jurisdiction if the director has determined
24 that the jurisdiction does not adequately and promptly enforce final
25 United States judgments and arbitration awards. Additional factors may be
26 considered in the discretion of the director.
27 (iii) A list of qualified jurisdictions shall be published through
28 the National Association of Insurance Commissioners committee process.
29 The director shall consider this list in