2023 Laws of Puerto Rico › TITLE TWENTY-SIX - Insurance (§§ 101 — 10377) › Subtitle 1 - Insurance Generally (§§ 101 — 4513) › Chapter 25 - Reserve for Catastrophic Insurance Losses (§§ 2501 — 2509) › § 2503 - Required reserve for catastrophic insurance losses

(1) The native insurers who are underwriting catastrophic insurance in Puerto Rico, must establish and accrue a reserve for all their policies that provide catastrophic insurance coverage. Pursuant to the provisions of § 2506 of this title, the assets that secure said reserve shall be used for the payment of catastrophic losses that are covered by said policies.
(2) Each domestic insurer shall annually compute the contribution to the reserve for catastrophic insurance losses by applying the proportion that the Commissioner, through regulations to such effect, determines from time to time, to its net direct premiums for that year. In order to determine said proportion, the Commissioner shall take into account the aggregate of the reserves for catastrophic insurance losses of the domestic insurers, the cost and availability of reinsurance, the cost of doing catastrophic insurance business in Puerto Rico, and any other factor that directly affects the capacity of domestic insurers to underwrite catastrophic insurance. Provided, That the proportion shall at no time exceed five percent (5%) of the net direct premiums.
(3) If a native insurer pays catastrophic insurance losses in one year, it may deduct the total amount of that payment from the reserve for catastrophic insurance losses corresponding to that year, provided that the payment does not arise from the funds contributed for reinsurance contracts that the insurer might have.
(4) The reserve for catastrophic insurance losses shall continue to increase until the total thereof reaches a sum that is at least eight percent (8%) of its catastrophic exposure for hurricanes. Insurers who, at the end of each calendar year maintain an amount accrued in their reserve for catastrophic insurance losses that exceeds the amount of the reserve required under this subsection, may withdraw the excess through a written request to the Commissioner. The Commissioner shall authorize said withdrawal within a term of not more than thirty (30) days following the receipt of the request.
(5) If a native insurer who is part of a group of insurers as an affiliate or subsidiary, transfers on a specific date or gradually, through a transaction, all or part of the volume of the catastrophic insurance business to another native insurer who is part of said group, the acquirer shall increment its reserve, with the corresponding contribution of funds to the trust, by an amount that shall be equal to the reserve that the transferring insurer had at the time of the transaction, multiplied by the proportion of the volume of business thus transferred.
(6) The reserve for catastrophic insurance losses shall be part of the liabilities of the domestic insurer up to a total amount of at least two percent (2%) of its catastrophic risk for hurricanes. The remaining portion of the reserve shall be part of the surplus of the insurer and shall not be considered as the reserve required for purposes of § 414(4)(a) of this title. The Commissioner, through regulation, order or administrative determination to such effects, shall establish the mechanism to be used by the insurer to show the amount of the liabilities required by this chapter in the annual financial statement. The contributions to the catastrophic reserve losses shall be in the nature of unpaid losses and the required minimum withholding shall be charged against the assets of the domestic insurer upon determination of his/her financial situation. Contributions to the catastrophic reserve shall be deductible as a loss when determining the taxable net income under the Puerto Rico Internal Revenue Code.
(7) At the time of the purchase of reinsurance for catastrophic insurance, every insurer shall be bound to establish a minimum withholding of at least two percent (2%) of its catastrophic risk for hurricanes. The Commissioner, through regulations, order or administrative ruling to such effects, shall establish the procedure to be followed by the insurer to comply with this obligation.
History —Ins. Code, added as § 25.030 on Aug. 12, 1994, No. 73, § 1; Oct. 13, 2006, No. 227, § 3.