In 2019 the NAIC adopted revisions to the Credit for Reinsurance Model Law and the Credit for Reinsurance Model Regulation. The objective of these revisions was to aid in consistency between the NAIC guidance and the Covered Agreement as well as to level the playing field for reinsurers who may operate in multiple jurisdictions which don’t fall under the Covered Agreement. The general requirements are as follows:
- Assuming insurer must have its head office or be domiciled in and be licensed in a jurisdiction that has been recognized as a reciprocal jurisdiction by the commissioner. Note the commissioner will be responsible for publishing a list of approved reciprocal jurisdictions.
- Assuming insurer must have and maintain on an ongoing basis a minimum capital and surplus, or its equivalent, calculated according to the methodology of its domiciliary jurisdiction.
- Assuming insurer must have and maintain on an ongoing basis a minimum solvency or capital ratio.
- Assuming insurer must agree and provide adequate assurance to the commission regarding certain representations. One of these is that the insurer will provide prompt written notice if they fall below any of the minimum requirements above.
- Assuming insurer or its legal predecessor, or successor where applicable, must provide certain documentation to the commissioner.
- Assuming insurer must maintain practice of prompt claims payment.
- Assuming insurer’s supervisory authority must confirm to the commissioner on an annual basis, at a time determined by the commissioner, that the assuming reinsurer meets the minimum capital and solvency requirements.
- Any other requirements deemed relevant by the commissioner.
Note that many of the details of these requirements will be determined by the commissioner and may vary by domicile and jurisdiction.
Through October 2021, 46 of the 55 jurisdictions had adopted the Revisions to the Credit for Reinsurance Model Law #785 and 3 jurisdictions have approval pending. Only 22 of the 55 jurisdictions have adopted Revisions to the Credit for Reinsurance Model Regulation #786 and 12 jurisdictions have approval pending. States are required to adopt these revisions by September 1, 2022. This date is when the Federal Insurance Office is required to start its federal preemption reviews. Pending the results of those reviews, if the revisions are not adopted, the Federal Government could assume regulatory control over reinsurance.
The Reinsurance Financial Analysis Working Group at the NAIC has put together a legislative summary which highlights the background discussion and key points of the revisions. This document is intended to provide state legislatures additional information to aid in adoption of the revisions. The Reinsurance Financial Analysis Working Group is also in the process of reviewing and exposing drafts for comment that detail the review process for an insurer to become a reciprocal jurisdiction reinsurer and a passported reinsurer. With this review and as more state legislatures adopt the revisions to the model laws and regulations, 2022 looks to see continued progress in the reinsurance industry.
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