2021 Legislature                                          SB 728
    2         An act relating to credit for reinsurance; amending s.
    3         624.610, F.S.; making a technical change; transferring
    4         specified authority and duties relating to credit for
    5         reinsurance from the Commissioner of Insurance to the
    6         Office of Insurance Regulation; revising the attorney
    7         designation requirement in reinsurance agreements with
    8         certain assuming insurers under certain circumstances;
    9         adding conditions under which a ceding insurer must be
   10         allowed credit for reinsurance; defining the terms
   11         “reciprocal jurisdiction” and “covered agreement”;
   12         specifying requirements for assuming insurers and
   13         reinsurance agreements; requiring the office to
   14         publish a list of reciprocal jurisdictions on its
   15         website; authorizing the office to remove reciprocal
   16         jurisdictions under a specified circumstance;
   17         specifying documentation requirements; authorizing a
   18         ceding insurer or its representative that is subject
   19         to rehabilitation, liquidation, or conservation to
   20         seek a certain court order; providing construction;
   21         specifying a limitation on credit taken by a ceding
   22         insurer; requiring the office to publish on its
   23         website a list of certain assuming insurers;
   24         authorizing the office to revoke or suspend an
   25         assuming insurer’s eligibility under certain
   26         circumstances; prohibiting credit for reinsurance
   27         under certain circumstances; providing exceptions;
   28         making technical changes; conforming provisions to
   29         changes made by the act; providing an effective date.
   31  Be It Enacted by the Legislature of the State of Florida:
   33         Section 1. Present subsections (4) through (15) of section
   34  624.610, Florida Statutes, are redesignated as subsections (5)
   35  through (16), respectively, a new subsection (4) is added to
   36  that section, and subsection (2), paragraphs (c), (e), and (f)
   37  of subsection (3), present subsection (4), paragraph (a) of
   38  present subsection (5), and paragraph (b) of present subsection
   39  (11) are amended, to read:
   40         624.610 Reinsurance.—
   41         (2) Credit for reinsurance must be allowed a ceding insurer
   42  as either an asset or a reduction deduction from liability on
   43  account of reinsurance ceded only when the reinsurer meets the
   44  requirements of paragraph (3)(a), paragraph (3)(b), or paragraph
   45  (3)(c), or subsection (4). Credit must be allowed under
   46  paragraph (3)(a) or paragraph (3)(b) only for cessions of those
   47  kinds or lines of business that the assuming insurer is
   48  licensed, authorized, or otherwise permitted to write or assume
   49  in its state of domicile or, in the case of a United States
   50  branch of an alien assuming insurer, in the state through which
   51  it is entered and licensed or authorized to transact insurance
   52  or reinsurance.
   53         (3)
   54         (c)1. Credit must be allowed when the reinsurance is ceded
   55  to an assuming insurer that maintains a trust fund in a
   56  qualified United States financial institution, as defined in
   57  paragraph (6)(b) (5)(b), for the payment of the valid claims of
   58  its United States ceding insurers and their assigns and
   59  successors in interest. To enable the office to determine the
   60  sufficiency of the trust fund, the assuming insurer shall report
   61  annually to the office information substantially the same as
   62  that required to be reported on the NAIC Annual Statement form
   63  by authorized insurers. The assuming insurer shall submit to
   64  examination of its books and records by the office and bear the
   65  expense of examination.
   66         2.a. Credit for reinsurance must not be granted under this
   67  subsection unless the form of the trust and any amendments to
   68  the trust have been approved by:
   69         (I) The insurance regulator of the state in which the trust
   70  is domiciled; or
   71         (II) The insurance regulator of another state who, pursuant
   72  to the terms of the trust instrument, has accepted principal
   73  regulatory oversight of the trust.
   74         b. The form of the trust and any trust amendments must be
   75  filed with the insurance regulator of every state in which the
   76  ceding insurer beneficiaries of the trust are domiciled. The
   77  trust instrument must provide that contested claims are valid
   78  and enforceable upon the final order of any court of competent
   79  jurisdiction in the United States. The trust must vest legal
   80  title to its assets in its trustees for the benefit of the
   81  assuming insurer’s United States ceding insurers and their
   82  assigns and successors in interest. The trust and the assuming
   83  insurer are subject to examination as determined by the
   84  insurance regulator.
   85         c. The trust remains in effect for as long as the assuming
   86  insurer has outstanding obligations due under the reinsurance
   87  agreements subject to the trust. No later than February 28 of
   88  each year, the trustee of the trust shall report to the
   89  insurance regulator in writing the balance of the trust and list
   90  the trust’s investments at the preceding year end, and shall
   91  certify that the trust will not expire prior to the following
   92  December 31.
   93         3. The following requirements apply to the following
   94  categories of assuming insurer:
   95         a. The trust fund for a single assuming insurer consists of
   96  funds in trust in an amount not less than the assuming insurer’s
   97  liabilities attributable to reinsurance ceded by United States
   98  ceding insurers, and, in addition, the assuming insurer shall
   99  maintain a trusteed surplus of not less than $20 million. Not
  100  less than 50 percent of the funds in the trust covering the
  101  assuming insurer’s liabilities attributable to reinsurance ceded
  102  by United States ceding insurers and trusteed surplus shall
  103  consist of assets of a quality substantially similar to that
  104  required in part II of chapter 625. Clean, irrevocable,
  105  unconditional, and evergreen letters of credit, issued or
  106  confirmed by a qualified United States financial institution, as
  107  defined in paragraph (6)(a) (5)(a), effective no later than
  108  December 31 of the year for which the filing is made and in the
  109  possession of the trust on or before the filing date of its
  110  annual statement, may be used to fund the remainder of the trust
  111  and trusteed surplus.
  112         b.(I) In the case of a group including incorporated and
  113  individual unincorporated underwriters:
  114         (A) For reinsurance ceded under reinsurance agreements with
  115  an inception, amendment, or renewal date on or after August 1,
  116  1995, the trust consists of a trusteed account in an amount not
  117  less than the group’s several liabilities attributable to
  118  business ceded by United States domiciled ceding insurers to any
  119  member of the group;
  120         (B) For reinsurance ceded under reinsurance agreements with
  121  an inception date on or before July 31, 1995, and not amended or
  122  renewed after that date, notwithstanding the other provisions of
  123  this section, the trust consists of a trusteed account in an
  124  amount not less than the group’s several insurance and
  125  reinsurance liabilities attributable to business written in the
  126  United States; and
  127         (C) In addition to these trusts, the group shall maintain
  128  in trust a trusteed surplus of which $100 million must be held
  129  jointly for the benefit of the United States domiciled ceding
  130  insurers of any member of the group for all years of account.
  131         (II) The incorporated members of the group must not be
  132  engaged in any business other than underwriting of a member of
  133  the group, and are subject to the same level of regulation and
  134  solvency control by the group’s domiciliary regulator as the
  135  unincorporated members.
  136         (III) Within 90 days after its financial statements are due
  137  to be filed with the group’s domiciliary regulator, the group
  138  shall provide to the insurance regulator an annual certification
  139  by the group’s domiciliary regulator of the solvency of each
  140  underwriter member or, if a certification is unavailable,
  141  financial statements, prepared by independent public
  142  accountants, of each underwriter member of the group.
  143         (e) If the reinsurance is ceded to an assuming insurer not
  144  meeting the requirements of paragraph (a), paragraph (b),
  145  paragraph (c), or paragraph (d), the office commissioner may
  146  allow credit, but only if the assuming insurer holds surplus in
  147  excess of $250 million and has a secure financial strength
  148  rating from at least two statistical rating organizations deemed
  149  acceptable by the office commissioner as having experience and
  150  expertise in rating insurers doing business in Florida,
  151  including, but not limited to, Standard & Poor’s, Moody’s
  152  Investors Service, Fitch Ratings, A.M. Best Company, and
  153  Demotech. In determining whether credit should be allowed, the
  154  office commissioner shall consider the following:
  155         1. The domiciliary regulatory jurisdiction of the assuming
  156  insurer.
  157         2. The structure and authority of the domiciliary regulator
  158  with regard to solvency regulation requirements and the
  159  financial surveillance of the reinsurer.
  160         3. The substance of financial and operating standards for
  161  reinsurers in the domiciliary jurisdiction.
  162         4. The form and substance of financial reports required to
  163  be filed by the reinsurers in the domiciliary jurisdiction or
  164  other public financial statements filed in accordance with
  165  generally accepted accounting principles.
  166         5. The domiciliary regulator’s willingness to cooperate
  167  with United States regulators in general and the office in
  168  particular.
  169         6. The history of performance by reinsurers in the
  170  domiciliary jurisdiction.
  171         7. Any documented evidence of substantial problems with the
  172  enforcement of valid United States judgments in the domiciliary
  173  jurisdiction.
  174         8. Any other matters deemed relevant by the office
  175  commissioner. The office commissioner shall give appropriate
  176  consideration to insurer group ratings that may have been
  177  issued. The office commissioner may, in lieu of granting full
  178  credit under this subsection, reduce the amount required to be
  179  held in trust under paragraph (c).
  180         (f) If the assuming insurer is not authorized or accredited
  181  to transact insurance or reinsurance in this state pursuant to
  182  paragraph (a) or paragraph (b), the credit permitted by
  183  paragraph (c) or paragraph (d) must not be allowed unless the
  184  assuming insurer agrees in the reinsurance agreements:
  185         1.a. That in the event of the failure of the assuming
  186  insurer to perform its obligations under the terms of the
  187  reinsurance agreement, the assuming insurer, at the request of
  188  the ceding insurer, shall submit to the jurisdiction of any
  189  court of competent jurisdiction in any state of the United
  190  States, will comply with all requirements necessary to give the
  191  court jurisdiction, and will abide by the final decision of the
  192  court or of any appellate court in the event of an appeal; and
  193         b. To designate the Chief Financial Officer, pursuant to s.
  194  48.151, or a designated attorney as its true and lawful attorney
  195  upon whom may be served any lawful process in any action, suit,
  196  or proceeding instituted by or on behalf of the ceding company.
  197         2. This paragraph is not intended to conflict with or
  198  override the obligation of the parties to a reinsurance
  199  agreement to arbitrate their disputes, if this obligation is
  200  created in the agreement.
  201         (4)Credit must be allowed when the reinsurance is ceded to
  202  an assuming insurer meeting the requirements of this subsection.
  203         (a)The assuming insurer must be licensed in, and have its
  204  head office in or be domiciled in, as applicable, a reciprocal
  205  jurisdiction. As used in this subsection, the term “reciprocal
  206  jurisdiction” means a jurisdiction that is any of the following:
  207         1.A non-United States jurisdiction that is subject to an
  208  in-force covered agreement with the United States, each within
  209  its legal authority; or, in the case of a covered agreement
  210  between the United States and the European Union, a jurisdiction
  211  that is a member state of the European Union. As used in this
  212  subsection, the term “covered agreement” means an agreement
  213  entered into pursuant to the Dodd-Frank Wall Street Reform and
  214  Consumer Protection Act, 31 U.S.C. ss. 313 and 314, which is
  215  currently in effect or in a period of provisional application
  216  and which addresses the elimination, under specified conditions,
  217  of collateral requirements as a condition for entering into any
  218  reinsurance agreement with a ceding insurer domiciled in this
  219  state or for allowing the ceding insurer to recognize credit for
  220  reinsurance.
  221         2.A United States jurisdiction that meets the requirements
  222  for accreditation under the Financial Regulation Standards and
  223  Accreditation Program of the National Association of Insurance
  224  Commissioners.
  225         3.A qualified jurisdiction, as determined by the office,
  226  which is not otherwise described in subparagraph 1. or
  227  subparagraph 2. and which meets all of the following additional
  228  requirements, consistent with the terms and conditions of in
  229  force covered agreements, as specified by commission rule:
  230         a.The jurisdiction allows an insurer domiciled, or having
  231  its head office, in the jurisdiction to take credit for
  232  reinsurance ceded to an insurer domiciled in the United States
  233  in the same manner as reinsurance ceded to insurers domiciled in
  234  that jurisdiction.
  235         b.The jurisdiction does not require an assuming insurer
  236  domiciled in the United States to establish or maintain a local
  237  presence as a condition for entering into a reinsurance
  238  agreement with any ceding insurer subject to regulation by the
  239  jurisdiction or as a condition for allowing the ceding insurer
  240  to take credit for the ceded risk.
  241         c.The jurisdiction provides written confirmation that it
  242  recognizes the state regulatory approach to group supervision
  243  and group capital and that insurers and insurance groups
  244  domiciled, or maintaining their headquarters, in a jurisdiction
  245  accredited by the National Association of Insurance
  246  Commissioners are subject only to worldwide prudential insurance
  247  group supervision by the domiciliary state and are not subject
  248  to group supervision at the level of the worldwide parent
  249  undertaking of the insurance or reinsurance group by the
  250  qualified jurisdiction.
  251         d.The jurisdiction provides written confirmation that
  252  information regarding insurers and their parent, subsidiary, or
  253  affiliated entities shall be provided to the office in
  254  accordance with a memorandum of understanding or similar
  255  document between the office and such qualified jurisdiction.
  257  The office shall timely publish on its website a list of
  258  reciprocal jurisdictions. The office may remove a reciprocal
  259  jurisdiction determined to no longer meet the requirements of
  260  this paragraph.
  261         (b)1.The assuming insurer must have and maintain on an
  262  ongoing basis minimum capital and surplus, or its equivalent,
  263  calculated according to the methodology of its domiciliary
  264  jurisdiction, in the amount of $250 million or in a greater
  265  amount specified by commission rule.
  266         2.If the assuming insurer is an association, including
  267  incorporated and individual unincorporated underwriters, it must
  268  have and maintain on an ongoing basis:
  269         a.Minimum capital and surplus equivalents, or net of
  270  liabilities, calculated according to the methodology applicable
  271  in its domiciliary jurisdiction, in the amount of $250 million
  272  or in a greater amount specified by commission rule.
  273         b.A central fund containing a balance of $250 million or a
  274  greater amount specified by commission rule.
  275         (c)If credit is allowed for reinsurance ceded to the
  276  assuming insurer pursuant to:
  277         1.Subparagraph (a)1., the assuming insurer must maintain a
  278  minimum solvency or capital ratio specified in the applicable
  279  covered agreement.
  280         2.Subparagraph (a)2., the assuming insurer must maintain a
  281  risk-based capital ratio of 300 percent of the authorized
  282  control level, calculated in accordance with s. 624.4085.
  283         3.Subparagraph (a)3., the assuming insurer must maintain a
  284  solvency or capital ratio determined by the office to be an
  285  effective measure of solvency.
  286         (d)The assuming insurer must, in a form specified by the
  287  commission:
  288         1.Agree to provide prompt written notice and explanation
  289  to the office if the assuming insurer falls below the minimum
  290  requirements set forth in paragraph (b) or paragraph (c), or if
  291  any regulatory action is taken against it for serious
  292  noncompliance with applicable law of any jurisdiction.
  293         2.Consent in writing to the jurisdiction of the courts of
  294  this state and to the designation of the Chief Financial
  295  Officer, pursuant to s. 48.151, as its true and lawful attorney
  296  upon whom may be served any lawful process in any action, suit,
  297  or proceeding instituted by or on behalf of the ceding insurer.
  298  This subparagraph does not limit or alter in any way the
  299  capacity of parties to a reinsurance agreement to agree to an
  300  alternative dispute resolution mechanism, except to the extent
  301  that such agreement is unenforceable under applicable insolvency
  302  or delinquency laws.
  303         3.Consent in writing to pay all final judgments, wherever
  304  enforcement is sought, obtained by a ceding insurer or its legal
  305  successor which have been declared enforceable in the
  306  jurisdiction where the judgment was obtained.
  307         4.Confirm in writing that it will include in each
  308  reinsurance agreement a provision requiring the assuming insurer
  309  to provide security in an amount equal to 100 percent of the
  310  assuming insurer’s liabilities attributable to reinsurance ceded
  311  pursuant to that agreement, if the assuming insurer resists
  312  enforcement of a final judgment that is enforceable under the
  313  law of the jurisdiction in which it was obtained or enforcement
  314  of a properly enforceable arbitration award, whether obtained by
  315  the ceding insurer or by its legal successor on behalf of its
  316  resolution estate.
  317         5.Confirm in writing that it is not presently
  318  participating in any solvent scheme of arrangement which
  319  involves this state’s ceding insurers, and agree to notify the
  320  ceding insurer and the office and to provide security in an
  321  amount equal to 100 percent of the assuming insurer’s
  322  liabilities to the ceding insurer if the assuming insurer enters
  323  into such a solvent scheme of arrangement. Such security must be
  324  consistent with subsection (5) or as specified by commission
  325  rule.
  326         (e)If requested by the office, the assuming insurer or its
  327  legal successor must provide, on behalf of itself and any legal
  328  predecessors, the following additional documentation:
  329         1.The assuming insurer’s annual audited financial
  330  statements, for the 2-year period before entering into the
  331  reinsurance agreement and on an annual basis thereafter, in
  332  accordance with the applicable law of the jurisdiction of its
  333  head office or domiciliary jurisdiction, as applicable,
  334  including the external audit report.
  335         2.The solvency and financial condition report or actuarial
  336  opinion, if filed with the assuming insurer’s supervisor, for
  337  the 2-year period before entering into the reinsurance
  338  agreement.
  339         3.Before entering into the reinsurance agreement and not
  340  more than semiannually thereafter, an updated list of all
  341  disputed and overdue reinsurance claims outstanding for 90 days
  342  or more regarding reinsurance assumed from ceding insurers
  343  domiciled in the United States.
  344         4.Before entering into the reinsurance agreement and not
  345  more than semiannually thereafter, information regarding the
  346  assuming insurer’s assumed reinsurance by ceding insurer, ceded
  347  reinsurance by the assuming insurer, and reinsurance recoverable
  348  on paid and unpaid losses by the assuming insurer.
  349         5.Additional information as reasonably required by the
  350  office.
  351         (f)The assuming insurer must maintain a practice of prompt
  352  payment of claims under reinsurance agreements and must report
  353  to the office reinsurance recoverables that are more than 90
  354  days overdue or that are in dispute, as specified by commission
  355  rule.
  356         (g)The assuming insurer must annually provide to the
  357  office confirmation from its reciprocal jurisdiction, on a form
  358  adopted by the commission or as otherwise specified by
  359  commission rule, that, as of the preceding December 31 or as of
  360  the annual date otherwise statutorily reported to the reciprocal
  361  jurisdiction, the assuming insurer complied with the
  362  requirements of paragraphs (b) and (c).
  363         (h)This subsection does not preclude an assuming insurer
  364  from providing the office with information on a voluntary basis.
  365         (i)If subject to a legal process of rehabilitation,
  366  liquidation, or conservation, as applicable, the ceding insurer
  367  or its representative may seek and, if determined appropriate by
  368  the court in which the proceedings are pending, obtain an order
  369  requiring that the assuming insurer post security for all
  370  outstanding ceded liabilities.
  371         (j)This subsection does not limit or alter in any way the
  372  capacity of parties to a reinsurance agreement to agree on
  373  requirements for security or other terms in the reinsurance
  374  agreement, except as expressly prohibited by this section or
  375  other applicable law or commission rule.
  376         (k)1.Credit may be taken under this subsection only for
  377  reinsurance agreements entered into, amended, or renewed on or
  378  after the date on which the assuming insurer has satisfied the
  379  requirements to assume reinsurance under this subsection, and
  380  only with respect to losses incurred and reserves reported on or
  381  after the later of the date on which the assuming insurer has
  382  met all eligibility requirements pursuant to this subsection or
  383  the effective date of the new reinsurance agreement, amendment,
  384  or renewal.
  385         2.This paragraph does not alter or impair a ceding
  386  insurer’s right to take credit for reinsurance for which, and to
  387  the extent that, credit is not available under this subsection,
  388  if the reinsurance qualifies for credit under any other
  389  applicable provision of law or commission rule.
  390         3.This subsection does not authorize an assuming insurer
  391  to withdraw or reduce the security provided under any
  392  reinsurance agreement, except as authorized by the terms of the
  393  agreement.
  394         4.This subsection does not limit or alter in any way the
  395  capacity of parties to any reinsurance agreement to renegotiate
  396  the agreement.
  397         (l)The office shall timely publish on its website a list
  398  of assuming insurers that meet all of the requirements of this
  399  subsection.
  400         (m)If the office determines that an assuming insurer no
  401  longer meets one or more of the requirements of this subsection,
  402  the office may revoke or suspend the eligibility of the assuming
  403  insurer for recognition under this subsection.
  404         1.During the suspension of an assuming insurer’s
  405  eligibility, a reinsurance agreement issued, amended, or renewed
  406  after the effective date of the suspension does not qualify for
  407  credit, except to the extent that the assuming insurer’s
  408  obligations under the contract are secured in accordance with
  409  subsection (5).
  410         2.If an assuming insurer’s eligibility is revoked, a
  411  credit for reinsurance may not be granted after the effective
  412  date of the revocation with respect to any reinsurance agreement
  413  entered into by the assuming insurer, including a reinsurance
  414  agreement entered into before the date of revocation, except to
  415  the extent that the assuming insurer’s obligations under the
  416  contract are secured in a form acceptable to the office and
  417  consistent with subsection (5).
  418         (5)(4) An asset allowed or a reduction deduction from
  419  liability taken for the reinsurance ceded by an insurer to an
  420  assuming insurer not meeting the requirements of subsections
  421  (2), and (3), and (4) is allowed in an amount not exceeding the
  422  liabilities carried by the ceding insurer. The reduction
  423  deduction must be in the amount of funds held by or on behalf of
  424  the ceding insurer, including funds held in trust for the ceding
  425  insurer, under a reinsurance contract with the assuming insurer
  426  as security for the payment of obligations thereunder, if the
  427  security is held in the United States subject to withdrawal
  428  solely by, and under the exclusive control of, the ceding
  429  insurer, or, in the case of a trust, held in a qualified United
  430  States financial institution, as defined in paragraph (6)(b)
  431  (5)(b). This security may be in the form of:
  432         (a) Cash in United States dollars;
  433         (b) Securities listed by the Securities Valuation Office of
  434  the National Association of Insurance Commissioners and
  435  qualifying as admitted assets pursuant to part II of chapter
  436  625;
  437         (c) Clean, irrevocable, unconditional letters of credit,
  438  issued or confirmed by a qualified United States financial
  439  institution, as defined in paragraph (6)(a) (5)(a), effective no
  440  later than December 31 of the year for which the filing is made,
  441  and in the possession of, or in trust for, the ceding company on
  442  or before the filing date of its annual statement; or
  443         (d) Any other form of security acceptable to the office.
  444         (6)(a)(5)(a) For purposes of paragraph (5)(c) (4)(c)
  445  regarding letters of credit, a “qualified United States
  446  financial institution” means an institution that:
  447         1. Is organized or, in the case of a United States office
  448  of a foreign banking organization, is licensed under the laws of
  449  the United States or any state thereof;
  450         2. Is regulated, supervised, and examined by United States
  451  or state authorities having regulatory authority over banks and
  452  trust companies; and
  453         3. Has been determined by either the office or the
  454  Securities Valuation Office of the National Association of
  455  Insurance Commissioners to meet such standards of financial
  456  condition and standing as are considered necessary and
  457  appropriate to regulate the quality of financial institutions
  458  whose letters of credit will be acceptable to the office.
  459         (12)(11)
  460         (b) The summary statement must be signed and attested to by
  461  either the chief executive officer or the chief financial
  462  officer of the reporting insurer. In addition to the summary
  463  statement, the office may require the filing of any supporting
  464  information relating to the ceding of such risks as it deems
  465  necessary. If the summary statement prepared by the ceding
  466  insurer discloses that the net effect of a reinsurance treaty or
  467  treaties (or series of treaties with one or more affiliated
  468  reinsurers entered into for the purpose of avoiding the
  469  following threshold amount) at any time results in an increase
  470  of more than 25 percent to the insurer’s surplus as to
  471  policyholders, then the insurer shall certify in writing to the
  472  office that the relevant reinsurance treaty or treaties comply
  473  with the accounting requirements contained in any rule adopted
  474  by the commission under subsection (15) (14). If such
  475  certificate is filed after the summary statement of such
  476  reinsurance treaty or treaties, the insurer shall refile the
  477  summary statement with the certificate. In any event, the
  478  certificate must state that a copy of the certificate was sent
  479  to the reinsurer under the reinsurance treaty.
  480         Section 2. This act shall take effect July 1, 2021.