§ 161.3b. Calculation of credit for reinsurance regarding obligations secured with certified reinsurers.
(a) For a domestic ceding insurer to qualify for full financial statement credit for reinsurance ceded to a certified reinsurer, the certified reinsurer shall maintain security in a form acceptable to the Commissioner and consistent with section 319.1(b) of the act (40 P. S. § 442.1(b)) or in a multibeneficiary trust in accordance with § 161.3(3)(vii)(B) (relating to credit for reinsurance) except that:
(1) If a certified reinsurer maintains a trust to fully secure its obligations subject to § 161.3(3)(vii) and chooses to secure its obligations incurred as a certified reinsurer in the form of a multibeneficiary trust, the certified reinsurer shall maintain separate trust accounts for its obligations incurred under reinsurance agreements issued or renewed as a certified reinsurer with reduced security as permitted by this paragraph or comparable laws of other United States jurisdictions and for its obligations subject to § 161.3(3)(vii)(B). It shall be a condition to the grant of certification under this subsection that the certified reinsurer shall have bound itself, by the language of the trust and agreement with the chief regulatory official with principal regulatory oversight of each trust account, to fund, upon termination of a trust account, out of the remaining surplus of the trust any deficiency of another trust account.
(2) The minimum trusteed surplus requirements provided in § 161.3(3)(vii)are not applicable with respect to a multibeneficiary trust maintained by a certified reinsurer for the purpose of securing obligations incurred under this paragraph, except that the trust must maintain a minimum trusteed surplus of $10 million.
(b) The allowable credit allowed a ceding insurer must be based upon the security held by or on behalf of the ceding insurer and shall be calculated in accordance with the following requirements:
(1) For full credit to be allowed, the amount of security must correspond with the rating assigned by the Commissioner to the certified reinsurer under § 161.3a(a)(3) (relating to requirements for certified reinsurers) as follows:
Rating Security required Secure—1 0% Secure—2 10% Secure—3 20% Secure—4 50% Secure—5 75% Vulnerable—6 100% (2) Affiliated reinsurance transactions will receive the same opportunity for reduced security requirements as other reinsurance transactions.
(3) The Commissioner will require the certified reinsurer to post 100% for the benefit of the ceding insurer or its estate, security upon the entry of an order of rehabilitation, liquidation or conservation against the ceding insurer.
(4) To facilitate the prompt payment of claims, a certified reinsurer will not be required to post security for catastrophe recoverables for 1 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 Commissioner. When determining what constitutes a catastrophic occurrence, the Commissioner will consult with the NAIC and consider both natural and human events. The 1-year deferral period is contingent upon the certified reinsurer continuing to pay claims in a timely manner in compliance with its contractual obligations in the reinsurance agreement under which the claims are ceded. 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:
Line 1: Fire Line 2: Allied Lines Line 3: Farmowners multiple peril Line 4: Homeowners multiple peril Line 5: Commercial multiple peril Line 9: Inland Marine Line 12: Earthquake Line 21: Auto physical damage (c) With respect to obligations incurred by a certified reinsurer, if the security is insufficient, the Commissioner will reduce the allowable credit by an amount proportionate to the deficiency and has the discretion to impose further reductions in allowable credit upon finding that there is a material risk that the certified reinsurer’s obligations will not be paid in full when due.
(d) For purposes of calculating the allowable credit under this section, a certified reinsurer whose certification has been terminated for any reason shall be treated as a certified reinsurer required to secure 100% of its obligations.
(1) As used in this subsection, ‘‘terminated’’ refers to revocation, suspension, voluntary surrender and inactive status.
(2) If the Commissioner continues to assign a higher rating as permitted by this section, this requirement does not apply to a certified reinsurer in inactive status or to a reinsurer whose certification has been suspended.
(e) Based on the analysis conducted under § 161.3a(a)(3)(ii)(B)(V) of a certified reinsurer’s reputation for prompt payment of claims, the Commissioner may make appropriate adjustments in the security the certified reinsurer is required to post to protect its liabilities to United States ceding insurers, provided that the Commissioner will, at a minimum, increase the security the certified reinsurer is required to post by one rating level under § 161.3a(a)(3)(ii)(B)(I) if the Commissioner finds either of the following:
(1) More than 15% of the certified reinsurer’s ceding insurance clients have overdue reinsurance recoverables on paid losses of 90 days or more which are not in dispute and which exceed $100,000 for each cedent.
(2) The aggregate amount of reinsurance recoverables on paid losses not in dispute that are overdue by 90 days or more exceeds $50 million.
(f) This section does not prohibit the parties to a reinsurance agreement from agreeing to provisions establishing security requirements that exceed the minimum security requirements under this section or under § 161.8a (relating to reinsurance contracts).
Authority The provisions of this § 161.3b issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and section 319.1 of The Insurance Company Law of 1921 (40 P. S. § 442.1).
Source The provisions of this § 161.3b adopted May 24, 2013, effective June 24, 2013, 43 Pa.B. 2816.
Cross References This section cited in 31 Pa. Code § 161.3 (relating to credit for reinsurance).
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