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  H.B. No. 1689
 
 
 
 
AN ACT
  relating to credit for reinsurance governed by certain covered
  agreements and ceded to certain assuming insurers.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  Section 493.102(a), Insurance Code, is amended
  to read as follows:
         (a)  A ceding insurer may be allowed credit for reinsurance
  ceded, as an asset or as a deduction from liability, only if the
  reinsurance is ceded to an assuming insurer that:
               (1)  is authorized to engage in the business of
  insurance or reinsurance in this state;
               (2)  is accredited as a reinsurer in this state, as
  provided by Section 493.103;
               (3)  subject to Subchapter D, maintains, in a qualified
  United States financial institution that has been granted the
  authority to operate with fiduciary powers, a trust fund to pay
  valid claims of:
                     (A)  the assuming insurer's United States
  policyholders and ceding insurers; and
                     (B)  the policyholders' and ceding insurers'
  assigns and successors in interest; [or]
               (4)  is certified as a reinsurer in this state under
  Section 493.1033 and maintains adequate collateral as determined by
  the commissioner; or
               (5)  is an eligible assuming insurer under Section
  493.108.
         SECTION 2.  Subchapter C, Chapter 493, Insurance Code, is
  amended by adding Section 493.108 to read as follows:
         Sec. 493.108.  CREDIT ALLOWED FOR CERTAIN ELIGIBLE ASSUMING
  INSURERS. (a) Credit must be allowed when reinsurance is ceded to
  an assuming insurer that meets the conditions as required by this
  section.
         (b)  The assuming insurer must have its principal office or
  be domiciled in and be licensed in a reciprocal jurisdiction
  described by Subsection (c).
         (c)  In this section:
               (1)  "Reciprocal jurisdiction" means a jurisdiction
  that is:
                     (A)  a jurisdiction located outside of the United
  States or, in the case of a covered agreement between the United
  States and European Union, a member state of the European Union,
  that is subject to an in-force covered agreement described by
  Subdivision (2) with the United States, each within its legal
  authority;
                     (B)  a jurisdiction located in the United States
  that meets the requirements for accreditation under the National
  Association of Insurance Commissioners financial regulation
  standards and accreditation program; or
                     (C)  a qualified jurisdiction, as determined by
  the commissioner under Section 493.1035, that is not otherwise
  described in Paragraph (A) or (B) and meets certain additional
  requirements, consistent with the in-force covered agreements as
  specified by the commissioner by rule.
               (2)  "Covered agreement" means an agreement that:
                     (A)  is entered into under the Dodd-Frank Wall
  Street Reform and Consumer Protection Act (31 U.S.C. Sections
  313-314);
                     (B)  is in effect or in a period of provisional
  application; and
                     (C)  addresses the elimination, under specified
  conditions, of collateral requirements as a condition for entering
  into a reinsurance agreement with a ceding insurer domiciled in
  this state or allowing the ceding insurer to recognize credit for
  reinsurance. 
         (d)  The assuming insurer must have and maintain, on an
  ongoing basis, minimum capital and surplus, or its equivalent,
  calculated according to the methodology of the assuming insurer's
  domiciliary jurisdiction, in an amount required by the commissioner
  by rule. If the assuming insurer is an association, including
  incorporated and individual unincorporated underwriters, the
  assuming insurer must have and maintain, on an ongoing basis:
               (1)  minimum capital and surplus equivalents, net of
  liabilities, calculated according to the methodology of the
  assuming insurer's domiciliary jurisdiction; and
               (2)  a central fund containing a balance in an amount
  required by the commissioner by rule.
         (e)  The assuming insurer must have and maintain, on an
  ongoing basis, a minimum solvency or capital ratio, as applicable,
  required by the commissioner by rule. If the assuming insurer is an
  association, including incorporated and individual unincorporated
  underwriters, the association must have and maintain, on an ongoing
  basis, a minimum solvency or capital ratio in the reciprocal
  jurisdiction where the assuming insurer has its principal office or
  is domiciled and is licensed.
         (f)  The assuming insurer must agree and provide adequate
  assurance to the commissioner in a form as required by the
  commissioner by rule, as follows:
               (1)  The assuming insurer must provide prompt written
  notice and explanation to the commissioner if:
                     (A)  the assuming insurer no longer meets the
  minimum requirements under Subsection (d) or (e); or
                     (B)  any regulatory action is taken against the
  assuming insurer for serious noncompliance with applicable law;
               (2)  The assuming insurer must consent in writing to
  the jurisdiction of this state's courts and to the appointment of
  the commissioner as agent for service of process. The commissioner
  may require that an assuming insurer also include the consent for
  service of process in each reinsurance agreement to which the
  assuming insurer is a party. Nothing in this section limits or in
  any way alters the capacity of parties to a reinsurance agreement to
  agree to alternative dispute resolution mechanisms except to the
  extent the agreement is unenforceable under applicable insolvency
  or delinquency laws;
               (3)  The assuming insurer must consent in writing to
  pay all final judgments, wherever enforcement is sought, obtained
  by a ceding insurer or its legal successor, that have been declared
  enforceable in the jurisdiction where the judgment was obtained;
               (4)  Each reinsurance agreement must require the
  assuming insurer to provide security in an amount equal to 100
  percent of the assuming insurer's liabilities attributable to
  reinsurance ceded under the reinsurance agreement if the assuming
  insurer resists enforcement of:
                     (A)  a final judgment that is enforceable under
  the law of the jurisdiction in which the judgment was obtained; or
                     (B)  a properly enforceable arbitration award,
  whether obtained by the ceding insurer or its legal successor on
  behalf of the ceding insurer's receivership estate; and
               (5)  The assuming insurer must:
                     (A)  confirm that the assuming insurer is not
  presently participating in any solvent scheme of arrangement that
  involves this state's ceding insurers; and
                     (B)  if the assuming insurer enters into a solvent
  scheme of arrangement, agree to notify the ceding insurer and the
  commissioner that the assuming insurer entered into the scheme of
  arrangement and provide security in an amount equal to 100 percent
  of the assuming insurer's liabilities to the ceding insurer. The
  security required by this paragraph must be in a form consistent
  with the provisions of this subchapter and required by the
  commissioner by rule.
         (g)  On request of the commissioner, the assuming insurer or
  its legal successor, on behalf of the assuming insurer and any legal
  predecessor of the assuming insurer, must provide to the
  commissioner documentation required by the commissioner by rule.
         (h)  The assuming insurer must maintain a practice of prompt
  payment of claims under reinsurance agreements in accordance with
  criteria established by the commissioner by rule.
         (i)  The assuming insurer's supervisory authority must
  annually confirm to the commissioner, as of the preceding December
  31 or the annual date otherwise statutorily reported to the
  assuming insurer's reciprocal jurisdiction, that the assuming
  insurer complies with the requirements of Subsections (d) and (e).
         (j)  Nothing in this section prohibits an assuming insurer
  from voluntarily providing to the commissioner information related
  to this section.
         (k)  The commissioner shall timely develop and publish a list
  of reciprocal jurisdictions.
         (l)  The commissioner's list of reciprocal jurisdictions
  published under Subsection (k) must include any reciprocal
  jurisdiction described by Subsection (c)(1)(A) or (B). The
  commissioner shall consider any other reciprocal jurisdiction on
  the list of reciprocal jurisdictions published through the National
  Association of Insurance Commissioners committee process. The
  commissioner may, in accordance with criteria established by the
  commissioner by rule, approve a jurisdiction that does not appear
  on the list of reciprocal jurisdictions published through the
  National Association of Insurance Commissioners committee process
  to be placed on the list of reciprocal jurisdictions published
  under Subsection (k).
         (m)  The commissioner may remove a jurisdiction from the list
  of reciprocal jurisdictions published under Subsection (k) if, in
  accordance with a process established by the commissioner by rule,
  the commissioner finds that the jurisdiction ceases to meet the
  requirements of a reciprocal jurisdiction under this section.
  Notwithstanding the authority to remove a jurisdiction, the
  commissioner may not remove from the list a reciprocal jurisdiction
  described by Subsection (c)(1)(A) or (B). If the commissioner
  removes a reciprocal jurisdiction from the list published under
  Subsection (k), credit for reinsurance ceded to an assuming insurer
  that has its principal office or is domiciled in the removed
  jurisdiction must be allowed if otherwise allowed under this
  subchapter.
         (n)  The commissioner shall timely develop and publish a list
  of assuming insurers that satisfy the conditions imposed by this
  section and to which cessions must be granted credit under
  Subsection (a). The commissioner may add an assuming insurer to the
  list developed and published under this subsection if a National
  Association of Insurance Commissioners' accredited jurisdiction
  has added the assuming insurer to the accredited jurisdiction's
  list of eligible assuming insurers or if, on initial eligibility,
  the assuming insurer submits to the commissioner the information
  required by Subsection (f) and complies with any additional
  requirements imposed by the commissioner by rule except to the
  extent that the additional requirements conflict with the
  applicable covered agreement.
         (o)  If the commissioner finds that an assuming insurer
  ceases to meet one or more of the requirements under this section,
  the commissioner may revoke or suspend the assuming insurer's
  eligibility under this section in accordance with procedures
  established by the commissioner by rule.
         (p)  If an assuming insurer's eligibility is suspended, no
  reinsurance agreement issued, amended, or renewed after the
  effective date of the suspension qualifies for credit during the
  period of suspension except to the extent that the assuming
  insurer's obligations under the agreement are secured in accordance
  with Section 493.104.
         (q)  If an assuming insurer's eligibility is revoked, no
  credit for reinsurance may be granted after the effective date of
  the revocation with respect to any reinsurance agreements entered
  into by the assuming insurer, including reinsurance agreements
  entered into before the date of revocation except to the extent that
  the assuming insurer's obligations under the contract are secured
  in a form acceptable to the commissioner and consistent with the
  provisions of Section 493.104.
         (r)  If a ceding insurer is subject to rehabilitation,
  liquidation, or conservation, the ceding insurer or its
  representative may seek and, if found appropriate by the court in
  which the rehabilitation, liquidation, or conservation proceedings
  are pending, obtain an order requiring the assuming insurer to post
  security for all outstanding ceded liabilities.
         (s)  Nothing in this section limits or in any way alters the
  capacity of parties to a reinsurance agreement to agree on
  requirements for security or other terms in that reinsurance
  agreement, except as expressly prohibited by law.
         (t)  This section does not alter or impair a ceding insurer's
  right to take credit for reinsurance to the extent that credit is
  not available under this section if the reinsurance otherwise
  qualifies for credit under this subchapter.
         (u)  Nothing in this section authorizes an assuming insurer
  to withdraw or reduce the security provided under any reinsurance
  agreement except as permitted by the agreement.
         (v)  Nothing in this section limits or in any way alters the
  capacity of parties to any reinsurance agreement to renegotiate the
  agreement.
         (w)  This section applies only to:
               (1)  credit under a reinsurance agreement that is
  delivered, issued for delivery, or renewed on or after January 1,
  2022; and
               (2)  losses incurred and reserves reported on or after
  the later of:
                     (A)  the date on which the assuming insurer has
  met all eligibility requirements under this section; and
                     (B)  the effective date of the applicable
  reinsurance agreement, amendment, or renewal.
         SECTION 3.  (a) The commissioner of insurance shall
  prescribe and publish a list of reciprocal jurisdictions under
  Section 493.108, Insurance Code, as added by this Act, not later
  than January 1, 2022.
         (b)  The commissioner of insurance shall prescribe and
  publish a list of eligible assuming insurers under Section 493.108,
  Insurance Code, as added by this Act, not later than January 1,
  2022.
         (c)  Section 493.108, Insurance Code, as added by this Act,
  does not:
               (1)  change or impair a ceding insurer's right to take
  credit for reinsurance even though the credit is not available
  under Section 493.108, Insurance Code, as added by this Act, if the
  reinsurance otherwise qualifies for credit under Subchapter C,
  Chapter 493, Insurance Code;
               (2)  authorize an assuming insurer to withdraw or
  reduce the security provided under a reinsurance agreement in
  effect on the effective date of this Act except as permitted by the
  agreement; or
               (3)  change or impair the capacity of parties to a
  reinsurance agreement to renegotiate the agreement.
         SECTION 4.  This Act takes effect January 1, 2022.
 
 
  ______________________________ ______________________________
     President of the Senate Speaker of the House     
 
 
         I certify that H.B. No. 1689 was passed by the House on April
  8, 2021, by the following vote:  Yeas 148, Nays 0, 2 present, not
  voting.
 
  ______________________________
  Chief Clerk of the House   
 
 
         I certify that H.B. No. 1689 was passed by the Senate on April
  29, 2021, by the following vote:  Yeas 31, Nays 0.
 
  ______________________________
  Secretary of the Senate    
  APPROVED:  _____________________
                     Date          
   
            _____________________
                   Governor