DEPARTMENT OF INSURANCE AND FINANCIAL SERVICES
CREDIT FOR REINSURANCE
Filed with the secretary of state on
These rules take effect immediately upon filing with the secretary of state unless adopted under section 33, 44, or 45a(6) of the administrative procedures act of 1969, 1969 PA 306, MCL 24.233, 24.244, or 24.245a. Rules adopted under these sections become effective 7 days after filing with the secretary of state.
(By
authority conferred on the director of the department of insurance and
financial services by section sections 210, 1103, and 1106
of the insurance code of 1956, 1956 PA 218, sections 31, 32, and 33
of 1969 PA 306,MCL 500.210, 500.1103, and 500.1106, and E.R.O. Executive
Reorganization Order No. 2013-1, MCL 500.210, MCL 24.231 to MCL 24.233, MCL
550.991)
R 500.1122, R 500.1123, R 500.1124, R 500.1125, R 500.1127, R 500.1128, R 500.1130, R 500.1131, R 500.1132, and R 500.1133 of the Michigan Administrative Code are amended, and R 500.1134 is added, as follows:
R 500.1122 Definitions.
Rule 2. (1) As used in these rules:
(a) "“Beneficiary"” means the entity for
whose sole benefit a trust or letter of credit has been established and any
successor of the beneficiary by operation of law. If a court of law appoints a
successor in interest to the named beneficiary, then the named beneficiary
includes and is limited to the court appointed domiciliary receiver (including
conservator, rehabilitator, or liquidator).
(b) “Code” means the insurance code of 1956, 1956 PA 218, MCL 500.100 to 500.8302.
(c) “Department” means the Michigan department of insurance and financial services.
(d) “Director” means the director of the department.
(e)(b) "“Grantor"”
means the entity that has established a trust for the sole benefit of the
beneficiary. When a trust is established in conjunction with a reinsurance
agreement, the grantor is the unlicensed, unaccredited assuming insurer.
(f)(c) “Liabilities”
means the assuming insurer’s gross liabilities attributable to reinsurance
ceded by U.S. United States domiciled insurers, excluding
liabilities that are otherwise secured by acceptable means, and shall
include includes all of the following:
(i) For business ceded by domestic insurers authorized to write accident and health, and property and casualty insurance all of the following:
(A) Losses and allocated loss expenses paid by the ceding insurer, recoverable from the assuming insurer.
(B) Reserves for losses reported and outstanding.
(C) Reserves for losses incurred but not reported.
(D) Reserves for allocated loss expenses.
(E) Unearned premiums.
(ii) For business ceded by domestic insurers authorized to write life, health, and annuity insurance all of the following:
(A) Aggregate reserves for life policies and contracts net of policy loans and net due and deferred premiums.
(B) Aggregate reserves for accident and health policies.
(C) Deposit funds and other liabilities without life or disability contingencies.
(D) Liabilities for policy and contract claims.
(g) “NAIC” means the National Association of Insurance Commissioners.
(h)(d)
“Obligations”
means any of the following:
(i) Reinsured losses and allocated loss expenses paid by the ceding company, but not recovered from the assuming insurer.
(ii) Reserves for reinsured losses reported and outstanding.
(iii) Reserves for reinsured losses incurred but not reported.
(iv) Reserves for allocated reinsured loss expenses and unearned premiums.
(i) “Solvent scheme of arrangement” means a foreign or alien statutory or regulatory compromise procedure that is subject to requisite majority creditor approval and judicial sanction in the assuming insurer’s home jurisdiction either to finally commute liabilities of duly noticed classed members or creditors of a solvent debtor or to reorganize or restructure the debts and obligations of a solvent debtor on a final basis and that may be subject to judicial recognition and enforcement of the arrangement by a governing authority outside the ceding insurer’s home jurisdiction.
(2) A term defined in the code has the same meaning when used in these rules.
R 500.1123 Conditions applicable to a reinsurance agreement in conjunction with a trust agreement under section 1105 of the code, MCL 500.1105.
Rule 3. (1) A reinsurance agreement that is entered into in conjunction with a
trust agreement and the establishment of a trust account under section
1105 of the insurance code of 1956, 1956 PA 218, MCL 500.1105, may
contain any of the following provisions:
(a) A requirement that the assuming insurer enter into a trust agreement, establish a trust account for the benefit of the ceding insurer, and specify what the agreement is to cover.
(b)
A stipulation that assets deposited in the trust account shall must
be valued according to their current fair market value and shall consist
only of cash (United States legal tender), certificates of deposit issued by a
United States bank and payable in United States legal tender, and investments
of the types permitted by chapter 9 of the insurance code of 1956,
1956 PA 218, MCL 500.901 to 500.947, or any combination of cash, certificates
of deposit, or investments specified in this subrule, if the investments are
issued by an entity that is not the parent, subsidiary, or affiliate of either
the grantor or the beneficiary. The reinsurance agreement may further specify the
types of investments to be deposited. If a trust agreement is entered into in conjunction
with a reinsurance agreement covering risks other than life, annuities, and
accident and health, then the trust agreement may contain the provisions required
by this subdivision instead of including the provisions in the reinsurance
agreement.
(c) A requirement that the assuming insurer, before depositing assets with the trustee, execute assignments or endorsements in blank or transfer legal title to the trustee of all shares, obligations, or any other assets requiring assignments, so that the ceding insurer, or the trustee upon the direction of the ceding insurer, may, if necessary, negotiate the assets without the consent or signature from the assuming insurer or any other entity.
(d) A requirement that all settlements of account between the ceding insurer and the assuming insurer be made in cash or its equivalent.
(e)
A stipulation that the assuming insurer and the ceding insurer agree that the
assets in the trust account established pursuant to the provisions of the
reinsurance agreement may be withdrawn by the ceding insurer at any time, notwithstanding
any other provisions in the reinsurance agreement, and shall must be
used and applied by the ceding insurer or its successors in interest by
operation of law, including, without limitation, any liquidator, rehabilitator,
receiver, or conservator of the insurer, company, without diminution
because of insolvency on the part of the ceding insurer or the assuming insurer,
only for 1 or more of the following purposes:
(i) To pay or reimburse the ceding insurer for the assuming insurer'’s
share under the specific reinsurance agreement of premiums returned, but not
yet recovered from the assuming insurer, to the owners of policies reinsured
under the reinsurance agreement because of cancellation of the policies.
(ii) To pay or reimburse the ceding insurer for the assuming insurer'’s
share of surrenders and benefits or losses paid by the ceding insurer pursuant
to the provisions of the policies reinsured under the reinsurance agreement.
(iii) To pay or reimburse the ceding insurer for any other amounts necessary to secure the credit or reduction from liability for reinsurance taken by the ceding insurer.
(iv) To make payment to the assuming insurer of amounts held in the trust account in excess of the amount necessary to secure the credit or reduction from liability for reinsurance taken by the ceding insurer.
(2) The reinsurance agreement may also do any of the following:
(a) Give the assuming insurer the right to seek approval from the ceding
insurer, which shall must not be unreasonably or arbitrarily
withheld, to withdraw from the trust account all or any part of the trust
assets and transfer the assets to the assuming insurer, if either of the following
provisions is satisfied:
(i) The assuming insurer shall, at the time of withdrawal, replace the withdrawn assets with other qualified assets that have a current fair market value equal to the market value of the assets withdrawn so as to maintain, at all times, the deposit in the required amount.
(ii) After withdrawal and transfer, the current fair market value of the trust account is not less than 102% of the required amount.
(b) Provide for the return of any amount withdrawn in excess of the actual amounts required under subrule (1)(e) of this rule.
(c) Provide for interest payments, at a rate that is not more than the prime rate of interest, on the amounts held pursuant to subrule (1)(e) of this rule.
(d) Permit the award by any arbitration panel or court of competent jurisdiction of any of the following:
(i) Interest at a rate different from that provided in subdivision (c) of this subrule.
(ii) Court or arbitration costs.
(iii) Attorney fees.
(iv) Any other reasonable expenses.
(3) A trust agreement that is in compliance complies with the
provisions of these rules may be used to reduce any liability for reinsurance
ceded to an unauthorized assuming insurer in financial statements required to
be filed with the director if established on or before the date of filing of
the financial statement of the ceding insurer. Further, the amount of the
reduction for the existence of an acceptable trust account may be up to the
current fair market value of acceptable assets available to be withdrawn from
the trust account at that time, but the reduction shall must not
be more than the specific obligations under the reinsurance agreement that the
trust account was established to secure.
(4) Notwithstanding the effective date of this rule, any trust agreement or
underlying reinsurance agreement in existence before July 1, 1996, will
continue to be is acceptable until June 30, 1997, at which time the agreements
will have to must be in full compliance with this rule for the
trust agreement to be acceptable.
(5) The failure of any trust agreement to specifically identify the beneficiary
as that term is defined in R 500.1122(a) shall must not be
construed to affect any actions or rights that the director may take or possess
pursuant to the provisions of the laws of this state.
R
500.1124 Requirements for letters Letters of credit under section
1105 of the code, MCL 500.1105.
Rule 4. (1) A letter of credit used to reduce any liability for reinsurance ceded
to an unauthorized reinsurer under section 1105 of the insurance code,
of 1956, 1956 PA 218, MCL 500.1105, shall must be clean,
irrevocable, unconditional, and issued or confirmed by a qualified United
States financial institution, as that term is defined by section 1101 of the
insurance code of 1956 1956 PA 218, MCL 500.1101. The letter of credit shall
must contain an issue date and date of expiration and shall stipulate
that the beneficiary need only draw a sight draft under the letter of credit and
present it to obtain funds and that no other document need needs to
be presented. The letter of credit shall must also indicate that it
is not subject to any condition or qualifications outside of the letter of
credit. In addition, the letter of credit itself shall must not
contain reference to any other agreements, documents, or entities, except as provided
in R 500.1125(1).
(2) The heading of the letter of credit may include a boxed section that
contains the name of the applicant and other appropriate notations to provide a
reference for the letter of credit. The boxed section shall must be
clearly marked to indicate that the information is for internal identification
purposes only.
(3) The letter of credit shall must contain a statement to the
effect that the obligation of the qualified United States financial institution
under the letter of credit is not contingent upon reimbursement with respect thereto.
(4) The term of the letter of credit shall must be for at least 1
year and shall contain an "“evergreen clause"”
that prevents the expiration of the letter of credit without due notice from
the issuer. The “evergreen clause” shall must provide
for a period of not less than 30 days'’ notice before the
expiration date or nonrenewal of the letter of credit.
(5) The letter of credit shall must state whether it is subject
to and governed by the laws of this state, publication 600 of the International
Chamber of Commerce entitled the Uniform Customs and Practice for Documentary Credits
(UCP 600), or publication 590 of the International Chamber of Commerce entitled
International Standby Practices (ISP 98), or any successor publication, and all
drafts drawn thereunder shall must be presentable at an office in
the United States of a qualified United States financial institution.
(6) If the letter of credit is made subject to publication 600 of the
International Chamber of Commerce entitled the Uniform Customs and Practice for
Documentary Credits (UCP 600), or publication 590 of the International Chamber
of Commerce entitled International Standby Practices (ISP 98), or any successor
publication, then the letter of credit shall must specifically address
and make provision for an extension of time to draw against the letter of credit
if 1 or more of the occurrences specified in article 36 of publication 600, or
any successor publication, occur.
(7) If the letter of credit is issued by a financial institution authorized to
issue letters of credit, other than a qualified United States financial institution
as described in subrule (1) of this rule, then both of the following additional
requirements shall must be met:
(a) The issuing financial institution shall formally designate the confirming qualified United States financial institution as its agent for the receipt and payment of the drafts.
(b) An The “evergreen clause” shall must
provide for 30 days'’ notice before the expiration date or
nonrenewal of the letter of credit.
R 500.1125 Conditions applicable to reinsurance agreement in conjunction with letter of credit under section 1105 of the code, MCL 500.1105.
Rule 5. (1) A reinsurance agreement in conjunction with which a letter of credit is obtained under section 1105 of the code, MCL 500.1105, may contain any of the following provisions:
(a) A requirement that the assuming insurer provide letters of credit to the ceding insurer and specify what they are to cover.
(b) A stipulation that the assuming insurer and ceding insurer agree that the
letter of credit provided by the assuming insurer pursuant to the provisions of
the reinsurance agreement may be drawn upon at any time, notwithstanding any
other provisions in the agreement, and shall must be utilized by
the ceding insurer or its successors in interest only for 1 or more of the
following reasons:
(i) To pay or reimburse the ceding insurer for the assuming insurer'’s
share under the specific reinsurance agreement, of premiums returned, but not
yet recovered from the assuming insurers, to the owners of policies reinsured
under the reinsurance agreement on account of cancellations of the policies.
(ii) To pay or reimburse the ceding insurer for the assuming insurer'’s
share, under the specific reinsurance agreement, of surrenders and benefits or losses
paid by the ceding insurer, but not yet recovered from the assuming insurers,
under the terms and provisions of the policies reinsured under the reinsurance
agreement.
(iii) To pay or reimburse the ceding insurer in an amount necessary to secure the credit or reduction from liability for reinsurance taken by the ceding insurer.
(iv) Where the letter of credit will expire without renewal or be reduced or
replaced by a letter of credit for a reduced amount and where the assuming
insurer’s entire obligations under the reinsurance agreement remain
unliquidated and undischarged 10 days prior to before the termination
date, to withdraw amounts equal to the assuming insurer’s share of the
liabilities, to the extent that the liabilities have not yet been funded by the
assuming insurer and exceed the amount of any reduced or replacement letter of credit,
and deposit those amounts in a separate account in the name of the ceding
insurer in a qualified U.S. United States financial institution
apart from its general assets, in trust for such those uses and
purposes specified in paragraph (i) paragraphs (i) to (iii) of
this subdivision as may remain after withdrawal and for any period after the
termination date.
(c) A requirement that all of the provisions of this subrule shall must
be applied without diminution because of insolvency on the part of the ceding
insurer or assuming insurer.
(2) Nothing contained in subrule (1) of this rule shall preclude precludes
the ceding insurer and assuming insurer from providing for either or both
of the following:
(a) An interest payment, at a rate not more than the prime rate of interest, on the amounts held pursuant to subrule (1)(b) of this rule.
(b) The return of any amounts drawn down on the letters of credit in excess of the actual amounts required for subrule (1)(b) of this rule, or any amounts that are subsequently determined not to be due.
R 500.1127 Reinsurance contract.
Rule 7. Credit will must not be granted, nor an asset or reduction
from liability allowed, to a ceding insurer for reinsurance effected with
assuming insurers meeting the requirements of section 1103 of the code, MCL 500.1103,
not including section 1103(5), or section 1105 of the insurance code
of 1956, 1956 PA 218, MCL 500.1103 or 500.1105, and applicable
rules, or otherwise in compliance with section 1103 of the code, MCL 500.1103,
after the effective date of these rules, unless the reinsurance agreement
includes all of the following:
(a) A proper insolvency clause, which stipulates that reinsurance is payable directly to the liquidator or successor without diminution regardless of the status of the ceding company.
(b) A provision pursuant to section 1103 of the insurance code of
1956, 1956 PA 218, MCL 500.1103, whereby the assuming insurer, if an
unauthorized assuming insurer, has submitted to the jurisdiction of an alternative
dispute resolution panel or court of competent jurisdiction within the United
States, has agreed to comply with all requirements necessary to give the court
or panel jurisdiction, has designated an agent upon whom service of process may
be served, and has agreed to abide by the final decision of the court or
panel.
R 500.1128 Contracts affected.
Rule 8. All new and renewal reinsurance transactions entered into on or after
January 1, 2019 shall must conform to the requirements of the insurance
code of 1956, 1956 PA 218, MCL 500.100 to 500.8302, and these rules
if credit is to be given to the ceding insurer for the reinsurance.
R 500.1130 Credit for reinsurance; reinsurer licensed in this state.
Rule 10. Pursuant to section 1103(2) 1103(1) of the insurance code
of 1956, 1956 PA 218, MCL 500.1103, the director shall allow credit for
reinsurance ceded by a domestic insurer to an assuming insurer that was
licensed in this state as of any date on which statutory financial statement
credit for reinsurance is claimed.
R 500.1131 Credit for reinsurance; certified reinsurers.
Rule
11. (1) Pursuant to section 1103(6) of the insurance code of 1956,
1956 PA 218, MCL 500.1103(6), the director shall allow credit for
reinsurance ceded by a domestic insurer to an assuming insurer that has been
certified as a reinsurer in this state at all times for which statutory
financial statement credit for reinsurance is claimed under this rule. The credit
allowed shall must be based upon the security held by or on
behalf of the ceding insurer in accordance with a rating assigned to the
certified reinsurer by the director. The security shall must be
in a form consistent with sections 1103(6) and 1105 of the insurance code
of 1956, 1956 PA 218, MCL 500.1103(6) and MCL 500.1105, and the
requirements, as applicable, under R 500.1123, R 500.1124, R 500.1125, R
500.1126, and R 500.1133. The amount of security required in order for full
credit to be allowed shall must correspond with the following requirements:
Ratings Security Required
Secure—1 0%
Secure—2 10%
Secure—3 20%
Secure—4 50%
Secure—5 75%
Vulnerable—6 100%
(2) Affiliated reinsurance transactions shall must receive the
same opportunity for reduced security requirements as all other reinsurance
transactions.
(3) The director shall require the certified reinsurer to post 100% security, for the benefit of the ceding insurer or its estate, upon the entry of an order of rehabilitation, liquidation, or conservation against the ceding insurer.
(4) In order to facilitate the prompt payment of claims, a certified reinsurer shall
must not be required to post security for catastrophe recoverables for
a period of one year from the date of the first instance of a liability reserve
entry by the ceding company as a result of a loss from a catastrophic occurrence
as recognized by the director. The one-year deferral period is contingent upon
the certified reinsurer continuing to pay claims in a timely manner.
Reinsurance recoverables for only the following lines of business as reported
on the NAIC annual financial statement related specifically to the catastrophic
occurrence will be included in the deferral:
(a) Line 1: Fire.
(b) Line 2: Allied Lines.
(c) Line 3: Farmowners multiple peril.
(d) Line 4: Homeowners multiple peril.
(e) Line 5: Commercial multiple peril.
(f) Line 9: Inland Marine.
(g) Line 12: Earthquake.
(h) Line 21: Auto physical damage.
(5) Credit for reinsurance under this section shall apply rule only
applies to reinsurance contracts entered into or renewed on or after the
effective date of the certification of the assuming insurer. Any reinsurance
contract entered into prior to before the effective date of the
certification of the assuming insurer that is subsequently amended after the
effective date of the certification of the assuming insurer, or a new
reinsurance contract, covering any risk for which collateral was provided previously,
shall is only be subject to this section rule
with respect to the losses incurred and reserves reported from and after the
effective date of the amendment or new contract.
(6) Nothing in this rule shall prohibit prohibits the parties to
a reinsurance agreement from agreeing to provisions establishing security
requirements that exceed the minimum security requirements established for
certified reinsurers under this rule.
(7) The director shall post notice on the department’s website promptly upon receipt of any application for certification, including instructions on how members of the public may respond to the application. The director may not take final action on the application until at least 30 days after posting the notice required by this subrule.
(8) The director shall issue written notice to an assuming insurer that has made
application applied and been approved as a certified reinsurer. Included
in such notice shall be The notice must include the rating assigned
the certified reinsurer in accordance with pursuant to subrules
(1) through to (6) of this rule. The director shall publish a
list of all certified reinsurers and their ratings.
(9) In order to be eligible for certification, the assuming insurer shall meet all of the following requirements:
(a) The assuming insurer must be domiciled and licensed to transact insurance or reinsurance in a qualified jurisdiction, as determined by the director pursuant to subrule (15) of this rule.
(b) The assuming insurer must maintain capital and surplus, or its equivalent, of
no less than $250,000,000.00 calculated in accordance with pursuant
to subrule (10)(h) of this rule. This requirement may also be satisfied by
an association including incorporated and individual unincorporated
underwriters having minimum capital and surplus equivalents (net of liabilities)
of at least $250,000,000.00 and a central fund containing a balance of at least
$250,000,000.00.
(c) The assuming insurer must maintain financial strength ratings from two 2
or more rating agencies deemed considered acceptable by the
director. These ratings shall must be based on interactive
communication between the rating agency and the assuming insurer and shall must
not be based solely on publicly available information. These financial strength
ratings will be one factor used by the director in determining the
rating that is assigned to the assuming insurer. Acceptable rating agencies
include all of the following:
(i) Standard & Poor’s.
(ii) Moody’s Investors Service.
(iii) Fitch Ratings.
(iv) A.M. Best Company.
(v) Any other nationally recognized statistical rating organization.
(d) The certified reinsurer must comply with any other requirements reasonably imposed by the director.
(10) Each certified reinsurer shall must be rated on a legal
entity basis, with due consideration being given to the group rating where appropriate,
except that an association including incorporated and individual unincorporated
underwriters that has been approved to do business as a single certified
reinsurer may be evaluated on the basis of its group rating. Factors that may
be considered as part of the evaluation process include, but are not limited
to, all of the following:
(a) The certified reinsurer’s financial strength rating from an acceptable
rating agency. The maximum rating that a certified reinsurer may be assigned
will correspond to its financial strength rating as outlined in the table
below. The director shall use the lowest financial strength rating received
from an approved rating agency in establishing the maximum rating of a certified
reinsurer. A failure to obtain or maintain at least two 2 financial
strength ratings from acceptable rating agencies will result in loss of
eligibility for certification.
|
Best |
S&P |
Moody’s |
Fitch |
|
|
Secure—1 |
A++ |
AAA |
Aaa |
AAA |
|
Secure—2 |
A+ |
AA+, AA, AA- |
Aa1, Aa2, Aa3 |
AA+, AA, AA- |
|
Secure—3 |
A |
A+, A |
A1, A2 |
A+, A |
|
Secure—4 |
A- |
A- |
A3 |
A- |
|
Secure—5 |
B++, B+ |
BBB+, BBB, BBB- |
Baa1, Baa2, Baa3 |
BBB+, BBB, BBB- |
|
Vulnerable—6 |
B, B-C++, C+, C, C-, D, E, F |
BB+, BB, BB-, B+, B, B-, CCC, CC, C, D, R |
Ba1, Ba2, Ba3, B1, B2, B3, Caa, Ca, C |
BB+, BB, BB-, B+, B, B-, CCC+, CC, CCC-, DD |
(b) The business practices of the certified reinsurer in dealing with its ceding insurers, including its record of compliance with reinsurance contractual terms and obligations.
(c) For certified reinsurers domiciled in the United States, a review of the most recent applicable NAIC Annual Statement Blank, either Schedule F (for property/casualty reinsurers) or Schedule S (for life and health reinsurers).
(d) For certified reinsurers not domiciled in the United States, a review annually of a form approved by the director.
(e) The reputation of the certified reinsurer for prompt payment of claims under reinsurance agreements, based on an analysis of ceding insurers’ Schedule F reporting of overdue reinsurance recoverables, including the proportion of obligations that are more than 90 days past due or are in dispute, with specific attention given to obligations payable to companies that are in administrative supervision or receivership.
(f) Regulatory actions against the certified reinsurer.
(g) The report of the independent auditor on the financial statements of the
insurance enterprise, on the basis described in subrule (10)(h) subdivision
(h) of this rule.subrule.
(h) For certified reinsurers not domiciled in the United States, audited financial
statements (audited United States GAAP basis if available, audited IFRS basis
statements are allowed but must include an audited footnote reconciling equity
and net income to a United States GAAP basis, or, with the permission of the director,
audited IFRS statements with reconciliation to United States GAAP certified by
an officer of the company), regulatory filings, and actuarial opinion (as filed
with the non-U.S. United States jurisdiction supervisor, with
a translation into English). Upon the initial application for
certification, the director will consider audited financial statements for the
last 3 2 years filed with its non-U.S. United States
jurisdiction supervisor.
(i) The liquidation priority of obligations to a ceding insurer in the certified reinsurer’s domiciliary jurisdiction in the context of an insolvency proceeding.
(j) A certified reinsurer’s participation in any solvent scheme of arrangement,
or similar procedure, which that involves U.S. United
States ceding insurers. The director shall receive prior notice from a
certified reinsurer that proposes participation by the certified reinsurer in a
solvent scheme of arrangement.
(k) Any other information deemed considered relevant by the
director.
(11) Based on the analysis conducted under subrule (10)(e) of this rule of a
certified reinsurer’s reputation for prompt payment of claims, the director may
make appropriate adjustments in the security the certified reinsurer is
required to post to protect its liabilities to U.S. United States
ceding insurers, provided that as long as the director shall,
at a minimum, increase increases the security the certified
reinsurer is required to post by one 1 rating level under subrule
(10)(a) of this rule if the director finds either of the following:
(a) More than 15% of the certified reinsurer’s ceding insurance clients have
overdue reinsurance recoverables on paid losses of 90 days or more which that
are not in dispute and which exceed $100,000.00 for each cedent.
(b) The aggregate amount of reinsurance recoverables on paid losses which that
are not in dispute that are overdue by 90 days or more exceeds $50,000,000.00.
(12) The assuming insurer must submit a properly executed form approved by the
director as evidence of its submission to the jurisdiction of this state,
appointment of the director as an agent for service of process in this state,
and agreement to provide security for 100% of the assuming insurer’s liabilities
attributable to reinsurance ceded by U.S. United States ceding
insurers if it resists enforcement of a final U.S. United States judgment.
The director shall not certify any assuming insurer that is domiciled in a
jurisdiction that the director has determined does not adequately and promptly
enforce final U.S. United States judgments or arbitration awards.
(13) The certified reinsurer must agree to meet applicable information filing
requirements as determined by the director, both with respect to an initial
application for certification and on an ongoing basis. All information submitted
by certified reinsurers which that are not otherwise public
information subject to disclosure shall be are exempted from
disclosure under the freedom of information act, 1976 PA 442, MCL 15.231 to
15.246, and shall must be withheld from public disclosure. The
applicable information filing requirements include all of the following:
(a) Notification within 10 days of any regulatory actions taken against the certified
reinsurer, any change in the provisions of its domiciliary license or any
change in rating by an approved rating agency, including a statement describing
such the changes and the reasons therefore for the
changes.
(b) Annually, the filing of a form approved by the director.
(c) Annually, the report of the independent auditor on the financial statements of the insurance enterprise, on the basis described in subdivision (d) of this subrule.
(d) Annually, the most recent audited financial statements (audited
U.S. GAAP basis if available, audited IFRS basis statements are allowed but
must include an audited footnote reconciling equity and net income to a U.S. GAAP
basis, or, with the permission of the director, audited IFRS statements with reconciliation
to U.S. GAAP certified by an officer of the company), regulatory filings,
and actuarial opinion (as filed with the certified reinsurer’s supervisor,
with a translation into English). Upon the initial certification, audited
financial statements for the last 3 2 years filed with the
certified reinsurer’s supervisor.
(e) At least annually, an updated list of all disputed and overdue reinsurance
claims regarding reinsurance assumed from U.S. United States domestic
ceding insurers.
(f) A certification from the certified reinsurer’s domestic regulator that the certified reinsurer is in good standing and maintains capital in excess of the jurisdiction’s highest regulatory action level.
(g) Any other information that the director may reasonably require.
(14) All of the following apply to a change in rating or revocation of certification, as applicable:
(a) In the case of a downgrade by a rating agency or other disqualifying
circumstance, the director shall upon written notice assign a new rating to the
certified reinsurer in accordance with pursuant to the
requirements of subrule (10)(a) of this rule.
(b) The director shall have has the authority to suspend, revoke,
or otherwise modify a certified reinsurer’s certification at any time if the
certified reinsurer fails to meet its obligations or security requirements under
this section rule, or if other financial or operating results of
the certified reinsurer, or documented significant delays in payment by the certified
reinsurer, lead the director to reconsider the certified reinsurer’s ability or
willingness to meet its contractual obligations.
(c) If the rating of a certified reinsurer is upgraded by the director, the certified reinsurer may meet the security requirements applicable to its new rating on a prospective basis, but the director shall require the certified reinsurer to post security under the previously applicable security requirements as to all contracts in force on or before the effective date of the upgraded rating. If the rating of a certified reinsurer is downgraded by the director, the director shall require the certified reinsurer to meet the security requirements applicable to its new rating for all business it has assumed as a certified reinsurer.
(d) Upon revocation of the certification of a certified reinsurer by the
director, the assuming insurer shall be required to post security in
accordance with pursuant to section 1105 of the insurance code
of 1956, 1956 PA 218, MCL 500.1105, in order for the ceding insurer to
continue to take credit for reinsurance ceded to the assuming insurer. If funds continue to be held in trust in accordance with
R 500.1122 to R 500.1123, pursuant to section 1103(4) of the code, MCL
500.1103, and R 500.1132, the director may allow additional credit
equal to the ceding insurer’s pro rata share of such funds, discounted to
reflect the risk of uncollectibility and anticipated expenses of trust
administration. Notwithstanding the change of a certified reinsurer’s rating or
revocation of its certification, a domestic insurer that has ceded reinsurance
to that certified reinsurer may not be denied credit for reinsurance for a
period of 3 months for all reinsurance ceded to that certified reinsurer,
unless the reinsurance is found by the director to be at high risk of
uncollectibility.
(15) All of the following apply to the recognition of a jurisdiction as a qualified jurisdiction:
(a) If, upon conducting an evaluation under this rule with respect to the
reinsurance supervisory system of any non-U.S. United States assuming
insurer, the director determines that the jurisdiction qualifies to be
recognized as a qualified jurisdiction, the director shall publish notice and
evidence of such recognition in an appropriate manner. The director may
establish a procedure to withdraw recognition of those jurisdictions that are
no longer qualified.
(b) In order to determine whether the domiciliary jurisdiction of a non-U.S.
United States assuming insurer is eligible to be recognized as a
qualified jurisdiction, the director shall evaluate the reinsurance supervisory
system of the non-U.S. United States jurisdiction, both initially
and on an ongoing basis, and consider the rights, benefits and the extent of
reciprocal recognition afforded by the non-U.S. United States jurisdiction
to reinsurers licensed and domiciled in the U.S. United States. The
director shall determine the appropriate approach for evaluating the
qualifications of such those jurisdictions and create and publish
a list of jurisdictions whose for which reinsurers may be
approved by the director as eligible for certification. A qualified
jurisdiction must agree to share information and cooperate with the director
with respect to all certified reinsurers domiciled within that jurisdiction.
Additional factors to be considered in determining whether to recognize a qualified
jurisdiction, in the discretion of the director, include, but are not limited
to, all of the following:
(i) The framework under which the assuming insurer is regulated.
(ii) The structure and authority of the domiciliary regulator with regard to solvency regulation requirements and financial surveillance.
(iii) The substance of financial and operating standards for assuming insurers in the domiciliary jurisdiction.
(iv) The form and substance of financial reports required to be filed or made publicly available by reinsurers in the domiciliary jurisdiction and the accounting principles used.
(v) The domiciliary regulator’s willingness to cooperate with U.S. United
States regulators in general and the director in particular.
(vi) The history of performance by assuming insurers in the domiciliary jurisdiction.
(vii) Any documented evidence of substantial problems with the enforcement of
final U.S. United States judgments in the domiciliary jurisdiction.
A jurisdiction will is not be considered to be a qualified
jurisdiction if the director has determined that it does not adequately and promptly
enforce final U.S. United States judgments or arbitration awards.
(viii) Any relevant international standards or guidance with respect to mutual recognition of reinsurance supervision adopted by the International Association of Insurance Supervisors or successor organization.
(ix) Any other matters deemed considered relevant by the
director.
(c) A list of qualified jurisdictions shall be is published
through the NAIC committee process. The director shall consider this list in
determining qualified jurisdictions. If the director approves a jurisdiction
as qualified that does not appear on the list of qualified jurisdictions, the
director shall provide thoroughly documented justification with respect to the
criteria provided under subdivision (b)(i) to (ix) of this subrule.
(d) U.S. United States jurisdictions that meet the requirements
for accreditation under the NAIC financial standards and accreditation program shall
must be recognized as qualified jurisdictions.
(16) All of the following apply to the recognition of certification issued by an NAIC accredited jurisdiction:
(a) If an applicant for certification has been certified as a reinsurer in an
NAIC accredited jurisdiction, the director has the discretion to defer to that
jurisdiction’s certification, and to defer to the rating assigned by that
jurisdiction, if the assuming insurer submits a properly executed form approved
by the director and such additional information as the director requires.
The assuming insurer shall must be considered to be a certified
reinsurer in this state.
(b) Any change in the certified reinsurer’s status or rating in the other jurisdiction
shall apply applies automatically in this state as of the date it
takes effect in the other jurisdiction. The certified reinsurer shall notify
the director of any change in its status or rating within 10 days after
receiving notice of the change.
(c) The director may withdraw recognition of the other jurisdiction’s rating at
any time and assign a new rating in accordance with pursuant to subrule
(14)(a) of this rule.
(d) The director may withdraw recognition of the other jurisdiction’s certification
at any time, with written notice to the certified reinsurer. Unless the director
suspends or revokes the certified reinsurer’s certification in accordance
with under subrule (14)(a) of this rule, the certified reinsurer’s
certification shall remain remains in good standing in this state
for a period of 3 months, which shall must be extended if
additional time is necessary to consider the assuming insurer’s application for
certification in this state.
(17) In addition to the clauses required under R 500.1127, reinsurance
contracts entered into or renewed under this rule shall must include
a proper funding clause, which requires requiring the certified
reinsurer to provide and maintain security in an amount sufficient to avoid the
imposition of any financial statement penalty on the ceding insurer under this
rule for reinsurance ceded to the certified reinsurer.
(18) The director shall comply with all reporting and notification requirements that may be established by the NAIC with respect to certified reinsurers and qualified jurisdictions.
R 500.1132 Requirements for assets deposited in trusts established under section 1103 of the code, MCL 500.1103; specific security provided under section 1105 of the code, MCL 500.1105.
Rule 12. (1) Assets deposited in trusts established pursuant to section 1103 of
the insurance code of 1956, 1956 PA 218, MCL 500.1103, and this
rule shall must be valued according to their current fair market
value and shall consist only of 1 or more of the following:
(a) Cash in U.S. United States dollars.
(b) Certificates of deposit issued by a qualified U.S. United States
financial institution as defined in section 1101 of the insurance code of
1956, 1956 PA 218, MCL 500.1101.
(c) Clean, irrevocable, unconditional, and “evergreen” letters of credit issued
or confirmed by a qualified U.S. United States financial
institution, as defined in section 1101 of the insurance code of 1956, 1956
PA 218, MCL 500.1101.
(d) Investments of the type specified in this rule, provided that if
the investments meet all of the following criteria:
(i) Investments in or issued by an entity controlling, controlled by or under common
control with either the grantor or beneficiary of the trust shall does
not exceed 5% of total investments.
(ii) No more than 20% of the total of the investments in the trust may be
are foreign investments authorized under subrule (3)(2)(a)(v),
(c), (d)(ii), or (e) of this rule, and no more than 10% of the total of the
investments in the trust may be are securities denominated in
foreign currencies. For purposes of applying the preceding sentence, a
depository receipt denominated in U.S. United States dollars and
representing rights conferred by a foreign security shall must be
classified as a foreign investment denominated in a foreign currency.
(2)
The assets of a trust established to satisfy the requirements of section 1103 of
the insurance code of 1956, 1956 PA 218, MCL 500.1103, shall must
be invested only in 1 or more of the following investments:
(a) Government obligations that are not in default as to principal or interest, that are valid and legally authorized, and that are issued, assumed, or guaranteed by any of the following:
(i) The United States or any agency or instrumentality of the United States.
(ii) A state of the United States.
(iii) A territory, possession, or other governmental unit of the United States.
(iv) An agency or instrumentality of a governmental unit referred to in paragraphs
(ii) and (iii) of this subdivision if the obligations shall be are by
law (statutory of or otherwise) payable, as to both principal
and interest, from taxes levied, or by law required to be levied,
or from adequate special revenues pledged or otherwise appropriated or by law
required to be provided for making these payments, but shall must not
be obligations eligible for investment under this paragraph if payable solely out
of special assessments on properties benefited by local improvements.
(v) The government of any other country that is a member of the Organization for Economic Cooperation and Development and whose government obligations are rated A or higher, or the equivalent, by a rating agency recognized by the Securities Valuation Office of the NAIC.
(b) Obligations that are issued in the United States, or that are dollar
denominated and issued in a non-U.S. United States market.
by a solvent U.S. United States institution (other than an insurance
company) or that are assumed or guaranteed by a solvent U.S. United States
institution (other than an insurance company) and that are not in default as to
principal or interest if the obligations meet 1 of the following requirements:
(i) Are rated A or higher (or the equivalent) by a securities rating agency
recognized by the Securities Valuation Office of the NAIC, or if not so rated.,
are similar in structure and other material respects to other obligations of the
same institution that are so rated.
(ii) Are insured by at least one authorized insurer (other than the investing
insurer or a parent. subsidiary or affiliate of the investing insurer) licensed
to insure obligations in this state and, after considering the insurance.,
are rated AAA (or the equivalent) by a securities rating agency recognized by
the Securities Valuation Office of the NAIC.
(iii) Have been designated as Class One or Class Two by the Securities Valuation Office of the NAIC.
(c) Obligations issued, assumed, or guaranteed by a solvent non-U.S. United
States institution chartered in a country that is a member of the Organization
for Economic Cooperation and Development or obligations of U.S. United
States corporations issued in a non-U.S. United States currency,
provided that if in either case the obligations are rated A or
higher, or the equivalent, by a rating agency recognized by the Securities
Valuation Office of the NAIC.
(d) Equity interests to which the following apply, as applicable:.
(i) Investments in common shares or partnership interests of a solvent U.S.
United States institution are permissible if both of the following requirement
requirements are met:
(A) Its obligations and preferred shares, if any, are eligible as investments under this rule.
(B) The equity interests of the institution (except an insurance company) are
registered on a national securities exchange as provided in the securities exchange
act of 1934, 15 USC 78a to 78qq, or otherwise registered pursuant to that act,
and if otherwise registered, price quotations for them are furnished through a
nationwide automated quotations system approved by the Financial Industry Regulatory
Authority, or successor organization. A trust shall must not
invest in equity interests under this subparagraph in an amount exceeding 1% of
the assets of the trust even though the equity interests are not so registered
and are not issued by an insurance company.
(ii) 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 are permissible if both of the following requirements are met:
(A) All its obligations are rated A or higher, or the equivalent, by a rating agency recognized by the Securities Valuation Office of the NAIC.
(B) The equity interests of the institution are registered on a securities exchange regulated by the government of a country that is a member of the Organization for Economic Cooperation and Development.
(iii) An investment in or loan upon any one institution’s outstanding equity
interests shall must not exceed 1% of the assets of the trust.
The cost of an investment in equity interests made pursuant to this paragraph,
when added to the aggregate cost of other investments in equity interests then
held pursuant to this paragraph. shall, must not exceed ten
percent (10%) of the assets in the trust.
(e) Obligations issued, assumed, or guaranteed by a multinational
development bank, provided if the obligations are rated A or
higher, or the equivalent, by a rating agency recognized by the Securities
Valuation Office of the NAIC.
(f) Investment companies to which the following apply, as applicable:.
(i) Securities of an investment company registered pursuant to the investment company act of 1940, 15 USC 80a-1 to 80a-64, are permissible investments if the investment company meets either of the following:
(A) Invests at least 90% of its assets in the types of securities that qualify
as an investment under subrule (3) subdivision (a), (b), or (c)
of this rule subrule or invests in securities that are determined
by the director to be substantively similar to the types of securities set
forth in subrule (3) subdivision (a), (b), or (c) of this rule.subrule.
(B) Invests at least 90% of its assets in the types of equity interests that
qualify as an investment under subdivision (d)(1) (i) of this
subrule;.
(ii) Investments made by a trust in investment companies under this subrule shall
subdivision must not exceed either of the following limitations:
(A) An investment in an investment company qualifying under paragraph (i)(A) of
this subdivision shall must not exceed 10% of the assets in the
trust, and the aggregate amount of investment in qualifying investment
companies shall must not exceed 25% of the assets in the trust.
(B) Investments in an investment company qualifying under paragraph (i)(B)
of this subdivision shall must not exceed 5% of the assets in the
trust, and the aggregate amount of investment in qualifying investment
companies shall must be included when calculating the permissible
aggregate value of equity interests pursuant to subdivision (d)(i) of this
subrule.
(g) Letters of Credit credit to which all of the following apply:.
(i) In order for a letter of credit to qualify as an asset of the trust, the trustee shall have the right and the obligation pursuant to the deed of trust or some other binding agreement (as duly approved by the director) to immediately draw down the full amount of the letter of credit and hold the proceeds in trust for the beneficiaries of the trust if the letter of credit will otherwise expire without being renewed or replaced.
(ii) The trust agreement shall must provide that the trustee shall
be is liable for its negligence, willful misconduct, or lack of good
faith. The failure of the trustee to draw against the letter of credit in
circumstances where such the draw would be required shall must
be deemed considered to be negligence, and/or willful
misconduct, or both.
(3) A specific security provided to a ceding insurer by an assuming insurer
pursuant to section 1103(5) 1105 of the insurance code of
1956, 1956 PA 218, MCL 500.1103(5), shall 500.1105, must be
applied, until exhausted, to the payment of liabilities of the assuming insurer
to the ceding insurer holding the specific security prior to, before,
and as a condition precedent for., presentation of a claim by the
ceding insurer for payment by a trustee of a trust established by the assuming
insurer pursuant to this rule.
(4) An investment made pursuant to the provisions of subrule (2)(a), (b), or
(c) of this rule shall be is subject to all of the following
additional limitations:
(a) An investment in or loan upon the obligations of an institution other than
an institution that issues mortgage-related securities shall must
not exceed 5% of the assets of the trust.
(b) An investment in any one mortgage-related security shall must
not exceed 5% of the assets of the trust.
(c) The aggregate total investment in mortgage-related securities shall must
not exceed 25% of the assets of the trust.
(d)
Preferred or guaranteed shares issued or guaranteed by a solvent U.S. United
States institution are permissible investments if all of the institution’s
obligations are eligible as investments under subrule (2)(b)(i) and (iii) of
this rule, but shall must not exceed 2% of the assets of the
trust.
(5) As used in this rule:
(a) “Mortgage-related security” means an obligation that is rated AA or higher (or the equivalent) by a securities rating agency recognized by the Securities Valuation Office of the NAIC and that meets either of the following provisions:
(i) Represents ownership of one 1 or more promissory notes or
certificates of interest or participation in the notes (including any rights
designed to assure servicing of, or the receipt or timeliness of receipt by the
holders of the notes, certificates, or participation of amounts payable under
the notes, certificates, or participation), that meet both of the following
requirements:
(A) Are directly secured by a first lien on a single parcel of real estate, including stock allocated to a dwelling unit in a residential cooperative housing corporation, upon which is located a dwelling or mixed residential and commercial structure, or on a residential manufactured home as defined in 42 USC 5402(6), whether the manufactured home is considered real or personal property under the laws of the state in which it is located.
(B) Were originated by a savings and loan association, savings bank, commercial bank, credit union, insurance company, or similar institution that is supervised and examined by a federal or state housing authority, or by a mortgagee approved by the Secretary of Housing and Urban Development pursuant to 12 USC 1709 and 1715b, or, where the notes involve a lien on the manufactured home by an institution or by a financial institution approved for insurance by the Secretary of Housing and Urban Development pursuant to 12 USC 1703.
(ii) Is secured by one 1 or more promissory notes or certificates
of deposit or participations in the notes (with or without recourse to the insurer
of the notes) and, by its terms, provides for payments of principal in relation
to payments, or reasonable projections of payments, or notes meeting the requirements
of paragraph (i)(A) and (B) of this subdivision.
(b) “Promissory note” when used in connection with a manufactured home, shall
also include includes a loan, advance, or credit sale
as evidenced by a retail installment sales contract or other instrument.
R 500.1133 Trust agreements under section 1105 of the code, MCL 500.1105.
Rule 13. (1) Reinsurance trusts established
under section 1105 of the insurance code 1956, 1956 PA 218, MCL
500.1105, shall must comply with the requirements of R 500.1123
and this rule.
(2) The trust agreement shall must
be entered into between the beneficiary, the grantor, and a trustee. The trustee
shall must be a qualified United States financial institution
as defined by section 1101 of the insurance code of 1956, 1956 PA 218, MCL 500.1101.
(3) The trust agreement shall must
create a trust account into which assets shall must be deposited.
(4) All assets in the trust account shall
must be held by the trustee at the trustee’s office in the United States.
(5) The trust agreement shall must
provide for all of the following:
(a) The beneficiary shall have has
the right to withdraw assets from the trust account at any time, without
notice to the grantor, subject only to written notice from the beneficiary to
the trustee.
(b) No other statement or document is required to be presented to withdraw assets, except that the beneficiary may be required to acknowledge receipt of withdrawn assets.
(c) The trust agreement shall must
not be subject to any conditions or qualifications outside of the trust agreement.
(d) The trust agreement shall must
not contain references to any other agreements or documents, except as provided
for under subrules (12) and (13) of this rule.
(6) The trust agreement shall must
be established for the sole benefit of the beneficiary.
(7) The trust agreement shall must
require the trustee to do all of the following:
(a) Receive assets and hold all assets in a safe place.
(b) Determine that all assets are in a
form that the beneficiary, or the trustee upon the direction of the
beneficiary, may, whenever when necessary, negotiate the assets
without the consent of, or a signature from, the grantor or any other person or
entity.
(c) Furnish to the grantor and the beneficiary a statement of all assets in the trust account upon its inception and at intervals not less frequent than the end of each calendar quarter.
(d) Notify the grantor and the beneficiary within 10 days of any deposits to, or withdrawals from, the trust account.
(e) Upon written demand of the beneficiary, immediately take any and all steps necessary to transfer absolutely and unequivocally all right, title, and interest in the assets held in the trust account to the beneficiary and deliver physical custody of the assets to the beneficiary.
(f) Allow no substitutions or withdrawals of assets from the trust account, except on written instructions from the beneficiary. However, the trustee may, without the consent of, but with notice to, the beneficiary, upon call or maturity of any trust asset, withdraw the asset upon the condition that the proceeds are paid into the trust account.
(8) The trust agreement shall must
provide that written notice of termination shall must be
delivered by the trustee to the beneficiary not less than 30 days, but not more
than 45 days, before termination of the trust account.
(9) The trust agreement shall must
be made subject to and governed by the laws of the state in which the trust is established.
domiciled.
(10) The trust agreement shall must
prohibit invasion of the trust corpus for the purpose of paying compensation
to, or reimbursing the expenses of, the trustee. In order forFor
a letter of credit to qualify as an asset of the trust, the trustee shall have
the right and the obligation pursuant to the deed of trust or some other
binding agreement, as duly approved by the director, to immediately draw down
the full amount of the letter of credit and hold the proceeds in trust for the
beneficiaries of the trust if the letter of credit will otherwise expire
without being renewed or replaced.
(11) The trust agreement shall must
provide that the trustee shall be is liable for its own
negligence, willful misconduct, or lack of good faith. The failure of the
trustee to draw against the letter of credit in circumstances where such the
draw would be required shall be deemed is considered to
be negligence and/or, willful misconduct, or both.
(12) Notwithstanding other provisions of
this rule these rules, when a trust agreement is established in
conjunction with a reinsurance agreement covering risks other than life, annuities,
and accident and health, where it is customary practice to provide a trust
agreement for a specific purpose, the trust agreement may provide that the
ceding insurer shall undertake to use and apply amounts drawn upon the trust
account, without diminution because of the insolvency of the ceding insurer or
the assuming insurer, for any of the following purposes:
(a) To pay or reimburse the ceding insurer for the assuming insurer’s share under the specific reinsurance agreement regarding any losses and allocated loss expenses paid by the ceding insurer, but not recovered from the assuming insurer, or for unearned premiums due to the ceding insurer if not otherwise paid by the assuming insurer.
(b) To make payment to the assuming insurer of any amounts held in the trust account that are more than 102% of the actual amount required to fund the assuming insurer’s obligations under the specific reinsurance agreement.
(c) Where the ceding insurer has
received notification of termination of the trust account and where the
assuming insurer’s entire obligations under the specific reinsurance agreement
remain unliquidated and undischarged 10 days before the termination date, to
withdraw amounts equal to the obligations and deposit the amounts in a separate
account apart from its general assets in the name of the ceding insurer in any
qualified United States financial institution as defined in section 1101 of
the insurance code of 1956, 1956 PA 218, MCL 500.1101, in trust for the
uses and purposes specified in subdivisions (a) and (b) of this subrule as may
remain executory after the withdrawal and for any period after the termination
date.
(13) Notwithstanding other provisions of these rules, when a trust agreement is established in conjunction with a reinsurance agreement covering life, annuities, or accident and health risks, where it is customary to provide a trust agreement for a specific purpose, the trust agreement may provide that the ceding insurer shall undertake to use and apply amounts drawn upon the trust account, without diminution because of the insolvency of the ceding insurer or the assuming insurer, only for 1 or more of the following purposes:
(a) To pay or reimburse the ceding insurer for either or both of the following:
(i) The assuming insurer’s share under the specific reinsurance agreement of premiums returned, but not yet recovered from the assuming insurer, to the owners of policies reinsured under the reinsurance agreement on account of cancellations of the policies.
(ii) The assuming insurer’s share under the specific reinsurance agreement of surrenders and benefits or losses paid by the ceding insurer, but not yet recovered from the assuming insurer, under the terms and provisions of the policies reinsured under the reinsurance agreement.
(b) To pay the assuming insurer amounts held in the trust account in excess of the amount necessary to secure the credit or reduction from liability for reinsurance taken by the ceding insurer.
(c) Where the ceding insurer has
received notification of termination of the trust and where the assuming
insurer’s entire obligations under the specific reinsurance agreement remain
unliquidated and undischarged 10 days prior to before the
termination date, to withdraw amounts equal to the assuming insurer’s share of
liabilities, to the extent that the liabilities have not yet been funded by the
assuming insurer, and deposit those amounts in a separate account, in the name
of the ceding insurer in any qualified U.S. United States financial
institution apart from its general assets, in trust for the uses and purposes
specified in subdivisions (a) and (b) of this subrule as may remain executory
after withdrawal and for any period after the termination date.
(14) Either the reinsurance agreement or
the trust agreement shall must stipulate that assets deposited in
the trust account shall must be valued according to their current
fair market value and shall consist only of cash (United States legal
tender), certificates of deposit issued by a United States bank and payable in
United States legal tender, and investments of the types permitted by
chapter 9 of the insurance code of 1956, 1956 PA 218, MCL 500.901
to 500.947, or any combination of cash, certificates of deposit, or investments,
provided as long as investments in or issued by an entity
controlling, controlled by or under common control with either the grantor or the
beneficiary of the trust shall must not exceed 5% of total
investments. The agreement may further specify the types of investments to be
deposited. If the reinsurance agreement covers life, annuities, or accident
and health risks, then the provisions required by this subrule must be included
in the reinsurance agreement.
(15) The trust agreement may provide
that the trustee may resign upon the delivery of a written notice of
resignation which that is effective not less than 90 days after
receipt by the beneficiary and grantor of the notice and that the trustee may
be removed by the grantor by the delivery, to the trustee and the beneficiary,
of a written notice of removal which that is effective not less
than 90 days after receipt by the trustee and the beneficiary of the notice.
However, a resignation or removal is not effective until a successor trustee
has been duly appointed and approved by the beneficiary and the grantor and all
assets in the trust have been duly transferred to the new trustee.
(16) The grantor may have the full and
unqualified right to vote any shares of stock in the trust account and to receive
payments of any dividends or interest upon any shares of stock or obligations included
in the trust account. The interest or dividends shall must be
either forwarded promptly upon receipt to the grantor or deposited in a
separate account established in the grantor’s name.
(17) The trustee may be given authority
to invest and accept substitutions of any funds in the account only if
the investment or substitution is made with the prior approval of the beneficiary,
unless the trust agreement specifies categories of investments acceptable to the
beneficiary and authorizes the trustee to invest funds and to accept
substitutions which that the trustee determines are at least equal
in current fair market value to the assets withdrawn and which are
consistent with the restrictions in R 500.1123(1)(c).
(18) The trust agreement may provide that the beneficiary may at any time designate a party to which all or part of the trust assets are to be transferred. The transfer may be conditioned upon the trustee’s receipt, either before the transfer or simultaneous with the transfer, of other specified assets.
(19) The trust agreement may provide
that, upon termination of the trust account, all assets not previously withdrawn
by the beneficiary shall must, with the written approval by the
beneficiary, he be delivered over to the grantor.
R 500.1134 Credit for reinsurance; reciprocal jurisdictions.
Rule 14. (1) Pursuant to section 1103(7) to (18) of the code, MCL 500.1103, the director shall allow credit for reinsurance ceded by a domestic insurer to an assuming insurer that is licensed to write reinsurance by, and has its head office or is domiciled in, a reciprocal jurisdiction, and that meets the other applicable requirements of these rules.
(2) Credit is allowed pursuant to this rule if the reinsurance is ceded from an insurer domiciled in this state to an assuming insurer meeting all of the following conditions:
(a) The assuming insurer is licensed to transact reinsurance by, and has its head office or is domiciled in, a reciprocal jurisdiction.
(b) The assuming insurer has and maintains on an ongoing basis minimum capital and surplus, or its equivalent, calculated on at least an annual basis as of the preceding December 31 or at the annual date otherwise statutorily reported to the reciprocal jurisdiction, and confirmed as set forth in subdivision (g) of this subrule according to the methodology of its domiciliary jurisdiction, in the following amounts, as applicable:
(i) No less than $250,000,000.
(ii) For an assuming insurer that is an association, including incorporated and individual unincorporated underwriters, both of the following amounts:
(A) Minimum capital and surplus equivalents (net of liabilities) or own funds of the equivalent of at least $250,000,000.
(B) A central fund containing a balance of the equivalent of at least $250,000,000.
(c) The assuming insurer has and maintains on an ongoing basis a minimum solvency or capital ratio, as applicable, as follows:
(i) For an assuming insurer that has its head office or is domiciled in a reciprocal jurisdiction described in subrule (9)(b)(i) of this rule, the ratio specified in the applicable covered agreement.
(ii) For an assuming insurer that is domiciled in a reciprocal jurisdiction described in subrule (9)(b)(ii) of this rule, a risk-based capital (RBC) ratio of 300% of the authorized control level, calculated pursuant to the formula developed by the NAIC.
(iii) For an assuming insurer that is domiciled in a reciprocal jurisdiction described in subrule (9)(b)(iii) of this rule, after consultation with the reciprocal jurisdiction and considering any recommendations published through the NAIC committee process, including, but not limited to, solvency or capital ratio as the director determines to be an effective measure of solvency.
(d) The assuming insurer agrees to and provides adequate assurance of its agreement to all the following by submitting a properly executed form approved by the director:
(i) The assuming insurer must agree to provide prompt written notice and explanation to the director if it falls below the minimum requirements set forth in subdivisions (b) or (c) of this subrule, or if any regulatory action is taken against it for serious noncompliance with applicable law.
(ii) The assuming insurer must consent in writing to the jurisdiction of the courts of this state and to the appointment of the director as agent for service of process. The director may also require that the consent be provided and included in each reinsurance agreement under the director’s jurisdiction. This paragraph does not limit or in any way alter the capacity of parties to a reinsurance agreement to agree to alternative dispute resolution mechanisms, except to the extent the reinsurance agreement is unenforceable under applicable insolvency or delinquency laws.
(iii) The assuming insurer must consent in writing to pay all final judgments, wherever enforcement is sought, obtained by a ceding insurer, that have been declared enforceable in the territory where the judgment was obtained.
(iv) Each reinsurance agreement must include a provision requiring the assuming insurer to provide security in an amount equal to 100% of the assuming insurer’s liabilities attributable to reinsurance ceded pursuant to that agreement if the assuming insurer resists enforcement of a final judgment that is enforceable under the law of the jurisdiction in which it was obtained or a properly enforceable arbitration award, whether obtained by the ceding insurer or by its legal successor on behalf of its estate, if applicable.
(v) The assuming insurer must confirm that it is not presently participating in any solvent scheme of arrangement that involves this state’s ceding insurers and agree to notify the ceding insurer and the director and to provide 100% security to the ceding insurer consistent with the terms of the scheme if the assuming insurer enters into a solvent scheme of arrangement. That security must be in a form consistent with the provisions of sections 1103(6) and 1105 of the code, MCL 500.1103 and 500.1105, and the requirements, as applicable, under R 500.1123, R 500.1124, R 500.1125, R 500.1126, and R 500.1133.
(vi) The assuming insurer must agree in writing to meet the applicable information filing requirements as set forth in subdivision (e) of this subrule.
(e) The assuming insurer or its legal successor must provide, if requested by the director, on behalf of itself and any legal predecessors, the following documentation to the director:
(i) For the 2 years preceding entry into the reinsurance agreement and on an annual basis after those years, the assuming insurer’s annual audited financial statements, in accordance with the applicable law of the jurisdiction of its head office or domiciliary jurisdiction, as applicable, including the external audit report.
(ii) For the 2 years preceding entry into the reinsurance agreement, the solvency and financial condition report or actuarial opinion if filed with the assuming insurer’s supervisor.
(iii) Before entry into the reinsurance agreement and not more than semi-annually afterward, an updated list of all disputed and overdue reinsurance claims outstanding for 90 days or more, regarding reinsurance assumed from ceding insurers domiciled in the United States.
(iv) Before entry into the reinsurance agreement and not more than semi-annually afterward, information regarding the assuming insurer’s assumed reinsurance by ceding insurer, ceded reinsurance by the assuming insurer, and reinsurance recoverable on paid and unpaid losses by the assuming insurer to allow for the evaluation of the criteria set forth in subdivision (f) of this subrule.
(f) The assuming insurer must maintain a practice of prompt payment of claims under reinsurance agreements. There is evidence of a lack of prompt payment if any of the following criteria is met:
(i) More than 15% of the reinsurance recoverables from the assuming insurer are overdue and in dispute as reported to the director.
(ii) More than 15% of the assuming insurer’s ceding insurers or reinsurers have overdue reinsurance recoverables on paid losses of 90 days or more that are not in dispute and that exceed for each ceding insurer $100,000, or as otherwise specified in a covered agreement.
(iii) The aggregate amount of reinsurance recoverables on paid losses that are not in dispute, but are overdue by 90 days or more, exceeds $50,000,000, or as otherwise specified in a covered agreement.
(g) The assuming insurer’s supervisory authority must confirm to the director on an annual basis that the assuming insurer complies with the requirements set forth in subdivisions (b) and (c) of this subrule.
(3) Subrule (2) of this rule does not preclude an assuming insurer from providing the director with information on a voluntary basis.
(4) The director shall timely create and publish a list of reciprocal jurisdictions. The list must include any reciprocal jurisdiction described in subrule (9)(b)(i) and (ii) of this rule and consider any other reciprocal jurisdiction included on the list published through the NAIC committee process. The director may approve a jurisdiction that does not appear the NAIC list, as provided by applicable law or regulation or pursuant to criteria published through the NAIC committee process. The director may remove a jurisdiction from the list of reciprocal jurisdictions upon a determination that the jurisdiction no longer meets 1 or more of the requirements of a reciprocal jurisdiction, as provided by applicable law or regulation or pursuant to a process published through the NAIC committee process, except that the director shall not remove from the list a reciprocal jurisdiction as described under subrule (9)(b)(i) or (ii). Upon removal of a reciprocal jurisdiction from the list, credit for reinsurance ceded to an assuming insurer domiciled in that jurisdiction must be allowed if otherwise allowed pursuant to sections 1103, 1105, and 1106 of the code, MCL 500.1103, 500.1105, and 500.1106, and these rules.
(5) The director shall timely create and publish a list of assuming insurers that have satisfied the conditions set forth in this rule and to which cessions must be granted credit under this rule. Both of the following apply to the list of assuming insurers:
(a) If an NAIC accredited jurisdiction has determined that the conditions set forth in subrule (2) of this rule have been met, the director has the discretion to defer to that jurisdiction’s determination and add that assuming insurer to the list of assuming insurers to which cessions must granted credit under this subrule. The director may accept financial documentation filed with another NAIC accredited jurisdiction or with the NAIC in satisfaction of the requirements of subrule (2) of this rule.
(b) When requesting that the director defer to another NAIC accredited jurisdiction’s determination, an assuming insurer must submit a properly executed form approved by the director and additional information as the director may require. If the director receives a request under this subdivision, the director shall notify other states through the NAIC committee process and provide relevant information with respect to the determination of eligibility.
(6) If the director determines that an assuming insurer no longer meets 1 or more of the requirements under this rule, the director may revoke or suspend the eligibility of the assuming insurer for recognition under this rule. While an assuming insurer’s eligibility is suspended, no reinsurance agreement issued, amended, or renewed after the effective date of the suspension qualifies for credit except to the extent that the assuming insurer’s obligations under the contract are secured pursuant to section 1105 of the code, MCL 500.1105. If an assuming insurer’s eligibility is revoked, no credit for reinsurance may be granted after the effective date of the revocation with respect to any reinsurance agreements entered into by the assuming insurer, including reinsurance agreements entered into before the date of revocation, except to the extent that the assuming insurer’s obligations under the contract are secured in a form acceptable to the director and are consistent with the provisions of section 1105 of the code, MCL 500.1105.
(7) Before denying statement credit or imposing a requirement to post security under subrule (6) of this rule or adopting any similar requirement that has substantially the same regulatory impact as security, the director shall do all of the following:
(a) Communicate with the ceding insurer, the assuming insurer, and the assuming insurer’s supervisory authority that the assuming insurer no longer satisfies 1 of the conditions listed in subrule (2) of this rule.
(b) Provide the assuming insurer with 30 days from the initial communication to submit a plan to remedy the defect and 90 days from the initial communication to remedy the defect, except in exceptional circumstances in which a shorter period is necessary for policyholder and other consumer protection. After the expiration of 90 days or less, as set out in this subdivision, if the director determines that no or insufficient action was taken by the assuming insurer, the director may impose any of the requirements as set out in this subrule.
(c) Provide a written explanation to the assuming insurer of any of the requirements set out in this subrule.
(8) If subject to a legal process of rehabilitation, liquidation, or conservation, as applicable, the ceding insurer, or its representative, may seek and, if determined appropriate by the court in which the proceedings are pending, may obtain an order requiring that the assuming insurer post security for all outstanding liabilities.
(9) As used in this rule:
(a) “Covered agreement” means that term as defined in section 1103(27)(b)(i) of the code, MCL 500.1103.
(b) “Reciprocal jurisdiction” means a jurisdiction, as designated by the director pursuant to subrule (4) of this rule, that meets 1 of the following:
(i) A jurisdiction that meets the conditions under section 1103(27)(b)(i) of the code, MCL 500.1103.
(ii) A jurisdiction that meets the conditions under section 1103(27)(b)(ii) of the code, MCL 500.1103.
(iii) A qualified jurisdiction, as determined by the director pursuant to section 1103(6)(c) of the code, MCL 500.1103, and R 500.1131(15), that is not otherwise described in paragraphs (i) or (ii) of this subdivision, and that the director determines meets all of the following additional requirements:
(A) Provides that an insurer that has its head office or is domiciled in the qualified jurisdiction shall receive credit for reinsurance ceded to a United States-domiciled assuming insurer in the same manner as credit for reinsurance is received for reinsurance assumed by insurers domiciled in the qualified jurisdiction.
(B) Does not require a United States-domiciled assuming insurer to establish or maintain a local presence as a condition for entering into a reinsurance agreement with any ceding insurer subject to regulation by the non-United States jurisdiction or as a condition to allow the ceding insurer to recognize credit for such reinsurance.
(C) Recognizes the United States state regulatory approach to group supervision and group capital, by providing written confirmation by a competent regulatory authority, in the qualified jurisdiction, that insurers and insurance groups that are domiciled or maintain their headquarters in this state or another jurisdiction accredited by the NAIC shall be subject only to worldwide prudential insurance group supervision including worldwide group governance, solvency and capital, and reporting, as applicable, by the director or the commissioner of the domiciliary state and will not be subject to group supervision at the level of the worldwide parent undertaking of the insurance or reinsurance group by the qualified jurisdiction.
(D) Provides written confirmation by a competent regulatory authority in the qualified jurisdiction that information regarding insurers and their parent, subsidiary, or affiliated entities, if applicable, must be provided to the director pursuant to a memorandum of understanding or similar document between the director and the qualified jurisdiction, including, but not limited to, the International Association of Insurance Supervisors Multilateral Memorandum of Understanding or other multilateral memoranda of understanding coordinated by the NAIC.