INSURANCE DEPARTMENT [ 31 PA. CODE CH. 161 ] Requirements for Qualified and Certified Reinsurers [45 Pa.B. 4763]
[Saturday, August 15, 2015]The Insurance Department (Department) proposes to amend Chapter 161 (relating to requirements for qualified and certified reinsurers) to read as set forth in Annex A. The rulemaking is proposed under the authority of sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. §§ 66, 186, 411 and 412), regarding the general rulemaking authority of the Department, and section 319.1 of The Insurance Company Law of 1921 (act) (40 P. S. § 442.1), regarding credits for reinsurance.
Purpose
Chapter 161 was initially adopted in 1993 and sets forth requirements to be met for a licensed ceding insurer to receive credit for reinsurance in its financial statements. Unless an unlicensed reinsurer is qualified or certified to accept reinsurance from insurers, credit is not allowed as an admitted asset or as a reduction of liability relative to risks ceded by these licensed insurers. Qualified or certified reinsurers are those meeting the conditions for reinsurers specified by the Insurance Commissioner. The purpose of this proposed rulemaking is to update Chapter 161 to delete the requirement that a reinsurer must be listed on the successor list to the Non-Admitted Insurance Listing (now known as the Quarterly Listing of Alien Insurers) published by the National Association of Insurance Commissioners (NAIC) to be considered for qualification under section 319.1 of the act.
Neither the NAIC model law nor the NAIC model regulation contains this administrative requirement. The administrative requirement was originally included in the Pennsylvania regulation because at the time of implementation the Department did not have the expertise to evaluate the financial condition of reinsurers. Instead, the Department sought to rely upon the NAIC's evaluation of the entity's financial condition. However, because the NAIC did not evaluate reinsurers at that time, the Department instead chose to rely upon the NAIC's evaluation of entities in the surplus lines market. This resulted in a requirement in this Commonwealth that a reinsurer seeking to be ''qualified'' under Pennsylvania standards also be listed on the NAIC's list of insurers operating in the surplus lines market.
The proposed amendment to Chapter 161 would remove this administrative requirement and conform Pennsylvania's regulation to the model regulation and law developed by the NAIC entitled ''Credit for Reinsurance Model Law'' (#785) and ''Credit for Reinsurance Model Regulation'' (#786), respectively.
A copy of the copyrighted NAIC model regulation was provided to the Senate Banking and Insurance Committee, the House Insurance Committee, the Independent Regulatory Review Commission (IRRC), the Governor's Office of Policy and Planning, the Governor's Office of General Counsel and the Attorney General to assist in their analysis of this proposed rulemaking. Copies of NAIC model regulations are available to the general public by contacting the NAIC.
Explanation of Proposed Rulemaking
Section 161.3 (relating to credit for reinsurance) is proposed to be amended to delete the requirement that a reinsurer be listed on the Non-Admitted Insurers Listing published by the Non-Admitted Insurers Information Office of the NAIC, or a successor list, to be considered for qualification under section 319.1 of act.
External Comments
The Department circulated pre-exposure drafts of this proposed rulemaking to the Insurance Federation of Pennsylvania and the Pennsylvania Association of Mutual Insurance Companies and did not receive objections.
Affected Parties
Although Chapter 161 applies to all insurance companies domesticated in this Commonwealth and the reinsurers with whom they do business, this proposed rulemaking will apply only to an alien insurer seeking to be deemed a ''qualified'' reinsurer by the Insurance Commissioner.
Fiscal Impact
State government
There will be no material increase in cost to the Department as a result of this proposed rulemaking.
General public
While Chapter 161 does not have immediate fiscal impact on the general public, the general public will benefit to the extent that removing an unnecessary administrative requirement for reinsurers that are financially solvent and licensed in well-regulated jurisdiction will reduce the cost of reinsurance to ceding insurers in this Commonwealth and reduce trade barriers allowing for more competition in the reinsurance marketplace.
Political subdivisions
The proposed rulemaking will not impose additional costs on political subdivisions.
Private sector
This proposed rulemaking will not impose significant costs on the transaction of business in this Commonwealth.
Paperwork
The proposed rulemaking would not impose additional paperwork on the Department.
Effectiveness/Sunset Date
The proposed rulemaking will become effective within 30 days after final-form publication in the Pennsylvania Bulletin. The Department continues to monitor the effectiveness of regulations on a triennial basis; therefore, a sunset date has not been assigned.
Contact Person
Questions or comments regarding the proposed rulemaking may be addressed in writing to Jodi A. Frantz, Department Counsel, Insurance Department, 1341 Strawberry Square, Harrisburg, PA 17120, fax (717) 787-2567, jodfrantz@pa.gov within 30 days following the publication in the Pennsylvania Bulletin.
Under the Regulatory Review Act (71 P. S. §§ 745.1—745.12a), the Department is required to write to all commentators requesting whether or not they wish to receive a copy of the final-form rulemaking. To better serve stakeholders, the Department made a determination that all commentators will receive a copy of the final-form rulemaking when it is made available to the IRRC and the House and Senate Committees.
Regulatory Review
Under section 5(a) of the Regulatory Review Act (71 P. S. § 745.5(a)), on August 5, 2015, the Department submitted a copy of this proposed rulemaking and a copy of a Regulatory Analysis Form to the Independent Regulatory Review Commission (IRRC) and to the Senate and House Committees. A copy of this material is available to the public upon request.
Under section 5(g) of the Regulatory Review Act, IRRC may convey any comments, recommendations or objections to the proposed rulemaking within 30 days of the close of the public comment period. The comments, recommendations or objections must specify the regulatory review criteria which have not been met. The Regulatory Review Act specifies detailed procedures for review, prior to final publication of the rulemaking, by the Department, the General Assembly and the Governor of comments, recommendations or objections raised.
TERESA D. MILLER,
Insurance CommissionerFiscal Note: 11-253. No fiscal impact; (8) recommends adoption.
Annex A TITLE 31. INSURANCE PART VIII. MISCELLANEOUS PROVISIONS CHAPTER 161. REQUIREMENTS FOR QUALIFIED AND CERTIFIED REINSURERS § 161.3. Credit for reinsurance.
A licensed domestic ceding insurer will be allowed credit for reinsurance as either an asset or a deduction from liability on account of reinsurance ceded only when the reinsurer meets the requirements of this section or as otherwise provided in § 161.7 (relating to credit for joint underwriting or pooling arrangements).
* * * * * (3) Credit will be allowed when the reinsurance is ceded to an assuming alien insurer which has met the conditions specified in this paragraph and has been deemed to be a qualified reinsurer by the Commissioner. To be considered for qualification, an assuming alien insurer shall meet the following conditions. The insurer shall:
(i) File with the Commissioner evidence of its submission to the Commonwealth's jurisdiction.
(ii) Submit to the Commonwealth's authority to examine its books and records.
(iii) File with the application for qualification and annually thereafter substantially the same information as that required to be reported on the NAIC annual statement blank by licensed insurers.
[(iv) Be listed on the Non-Admitted Insurers Listing published by the Non-Admitted Insurers Information Office of the NAIC, or a successor list.
(v)] (iv) File with the application for qualification and annually thereafter details on the soundness of its ceded reinsurance program, including the identity, domicile and premium volume for each retrocessionaire when the amount of reinsurance premium ceded is greater than or equal to $50,000. If the insurer demonstrates to the Commissioner's satisfaction its inability to provide the requested detail with respect to individual retrocessionaires because of its method of operation, the Commissioner will consider the acceptability of alternative information pertaining to the soundness of the insurer's ceded reinsurance program.
[(vi)] (v) Agree to the requirements of this subparagraph in the reinsurance agreements. This subparagraph is not intended to conflict with or override the obligation of the parties to a reinsurance agreement to arbitrate their disputes, if an obligation is created in the agreement.
(A) In the event of the failure of the assuming insurer to perform its obligations under the terms of the reinsurance agreement, the assuming insurer shall at the request of the ceding insurer:
(I) Submit to the jurisdiction of a court of competent jurisdiction in a state of the United States.
(II) Comply with the requirements necessary to give the court jurisdiction.
(III) Abide by the final decision of the court or of an appellate court in the event of an appeal.
(B) The assuming insurer shall designate a person as its true and lawful agent upon whom may be served a lawful process in an action, suit or proceeding instituted by or on behalf of the ceding company.
[(vii)] (vi) Maintain a trust fund in a qualified United States financial institution, for the payment of valid claims of its United States policyholders and ceding insurers, their assigns and successors in interest.
* * * * * [Pa.B. Doc. No. 15-1494. Filed for public inspection August 14, 2015, 9:00 a.m.]
