Michigan Administrative Code › Department - Insurance and Financial Services › Insurance › Credit for Reinsurance › Section R. 500.1134 - Credit for reinsurance; reciprocal jurisdictions

Current through Vol. 24-12, July 15, 2024
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.