Wisconsin Administrative Code › Office of the Commissioner of Insurance › Chapter Ins 55 - Life and health reinsurance agreements › Section Ins 55.02 - Accounting requirements

Current through June 24, 2024
(1) No insurer may, for reinsurance ceded,
			 reduce any liability or establish any asset in any financial statement filed
			 with the office of the commissioner of insurance if, by the terms of the
			 reinsurance agreement, in substance or effect, any of the following conditions
			 exist:
(a) Renewal expense allowances
			 provided, or to be provided, to the ceding insurer by the reinsurer in any
			 accounting period, are not sufficient to cover anticipated allocable renewal
			 expenses of the ceding insurer on the portion of the business reinsured, unless
			 a liability is established for the present value of the shortfall using
			 assumptions equal to the applicable statutory reserve basis on the business
			 reinsured. Those expenses include commissions, premium taxes and direct
			 expenses including, but not limited to, billing, valuation, claims and
			 maintenance expected by the company at the time the business is
			 reinsured.
(b) The ceding insurer
			 can be deprived of surplus or assets at the reinsurer's option or automatically
			 upon the occurrence of some event, such as the insolvency of the ceding
			 insurer, other than termination of the reinsurance agreement by the reinsurer
			 for nonpayment of reinsurance premiums or other amounts due, such as modified
			 coinsurance reserve adjustments, interest and adjustments on funds withheld,
			 and tax reimbursements.
(c) The
			 ceding insurer is required to reimburse the reinsurer for negative experience
			 under the reinsurance agreement, other than offsetting experience refunds
			 against current and prior years' losses under the agreement, or payment by the
			 ceding insurer of an amount equal to the current and prior years' losses under
			 the agreement upon voluntary termination of in force reinsurance by the ceding
			 insurer. Voluntary termination does not include situations where termination
			 occurs because of unreasonable provisions which allow the reinsurer to reduce
			 its risk under the agreement, including, but not limited to, a provision which
			 provides that it is the right of the reinsurer to increase reinsurance premiums
			 or risk and expense charges to excessive levels which forces the ceding company
			 to prematurely terminate the reinsurance agreement.
(d) The ceding insurer must, at specific
			 points in time scheduled in the agreement, terminate or automatically recapture
			 all or part of the reinsurance ceded.
(e) The reinsurance agreement involves the
			 possible payment by the ceding insurer to the reinsurer of amounts other than
			 from income realized from the reinsured policies or the ceding insurer is
			 required to pay reinsurance premiums, or other fees or charges, to a reinsurer
			 which are greater than the direct premiums collected by the ceding
			 company.
(f) The treaty does not
			 transfer all of the significant risk inherent in the business being
			 reinsured.
(g)
1. Except as provided by subd. 2., the credit
			 quality, reinvestment, or disintermediation risk is significant for the
			 business reinsured and the ceding company does not either transfer the
			 underlying assets to the reinsurer or legally segregate such assets in a trust
			 or escrow account or otherwise establish a mechanism satisfactory to the
			 commissioner which legally segregates, by contract or contract provision, the
			 underlying assets.
2. The assets
			 supporting the reserves for classes of business which do not have a significant
			 credit quality, reinvestment or disintermediation risk, for the following
			 classes of business, may be held by the ceding company without segregation of
			 the assets:
a. Health Insurance -
			 LTC/LTD
b. Traditional Non-Par
			 Permanent
c. Traditional Par
			 Permanent
d. Adjustable Premium
			 Permanent
e. Indeterminate Premium
			 Permanent
f. Universal Life Fixed
			 Premium (no dump-in premiums allowed)
3. The associated formula for determining the
			 reserve interest rate adjustment must use a formula which reflects the ceding
			 company's investment earnings and incorporates all realized and unrealized
			 gains and losses reflected in the statutory statement. The following is an
			 acceptable formula:
See
							 Image
Where: I is the net investment income
CG is capital gains less capital losses
X is the current year cash and invested assets plus investment
				income due and accrued less borrowed money
Y is the same as X but for the prior year
(h) Settlements are made less
			 frequently than quarterly or payments due from the reinsurer are not made in
			 cash within 90 days of the settlement date.
(i) The ceding insurer is required to make
			 representations or warranties not reasonably related to the business being
			 reinsured.
(j) The ceding insurer
			 is required to make representations or warranties about future performance of
			 the business being reinsured.
(k)
			 The reinsurance agreement is entered into for the principal purpose of
			 producing significant surplus aid for the ceding insurer while not transferring
			 all of the significant risks inherent in the business reinsured and, in
			 substance or effect, the expected potential liability to the ceding insurer
			 remains basically unchanged.