Reinsurance: professional reinsurers.

(1) Existing law prohibits the transaction of any class of insurance in this state without first being admitted for that class of insurance, and admission is secured by procuring a certificate of authority from the Insurance Commissioner. Before granting a certificate of authority to any applicant, the commissioner is required to consider the qualifications of the applicant, including, but not limited to, capital and surplus and lawfulness and quality of investments. This bill would authorize the commissioner to designate an insurer as a professional reinsurer when an insurer admitted and domiciled in this state, or an insurer applying to become admitted and domiciled in this state, is determined by the commissioner to be qualified, as specified, which includes, but is not limited to, the commissioner determining that the insurer is principally engaged in the business of reinsurance, that the insurer does not conduct significant amounts of direct insurance as a percentage of its net premiums, and is not engaged, on an ongoing basis, in the business of soliciting direct insurance. (2) Existing law requires insurers doing business in this state to annually make and file with the commissioner financial statements. Existing law requires that credit for reinsurance as an asset or deduction from liability be allowed a domestic ceding insurer only if the reinsurance contract includes certain provisions, including, in the event of insolvency and the appointment of a conservator, liquidator, or statutory successor of the ceding company, that the reinsurance will be payable, as specified, without diminution because of the insolvency. This bill would revise that requirement to additionally apply in the event of a change in status of the ceding company, as specified, including when the commissioner finds that the conditions for the appointment of a conservator, liquidator, or statutory successor has occurred with respect to the ceding company. The bill would also require a ceding insurer to take steps to manage its reinsurance recoverables proportionate to its own book of business and to diversify its reinsurance program. The bill would also require a domestic ceding insurer to notify the commissioner within 30 days after reinsurance recoverables from any single assuming insurer, or group of affiliated assuming insurers, exceed 50% of the domestic ceding insurer's last reported surplus to policyholders, or after it is determined that the reinsurance recoverables are likely to exceed that limit, as specified. The bill would also require a domestic ceding insurer to notify the commissioner within 30 days after ceding to any single assuming insurer, or group of affiliated assuming insurers, more than 20% of the ceding insurer's gross written premium in the prior calendar year, or after it has determined that the reinsurance ceded is likely to exceed this limit, as specified. (3) Existing law also allows credit for reinsurance when the reinsurance is ceded to an assuming insurer that is accredited as a reinsurer in this state, except as specified. Existing law describes an accredited reinsurer for purposes of this provision as one that, among other criteria, maintains a surplus as regards to policyholders in an amount that is either not less than $20,000,000, and whose accreditation has not been denied by the commissioner within the last 90 days, or maintains a surplus that is less than $20,000,000 and whose accreditation has been approved by the commissioner. This bill would instead require that the reinsurer demonstrate to the satisfaction of the commissioner that it has adequate financial capacity to meet its reinsurance obligations and is otherwise qualified to assume reinsurance from domestic insurers, and would delete the provision authorizing a reinsurer whose accreditation has been approved to maintain a surplus of less than $20,000,000. The bill would instead provide that an assuming insurer who maintains a surplus of not less than $20,000,000 and whose accreditation has not been denied by the commissioner within the last 90 days shall be deemed to meet that requirement and would require that an assuming insurer who is not deemed to meet this requirement obtain the affirmative approval of the commissioner. The bill would require that the approval of the commissioner be based upon a finding that the assuming insurer has adequate financial capacity to meet its reinsurance obligations and is otherwise qualified to assume reinsurance from domestic insurers. (4) Existing law also provides that credit is allowed when reinsurance is ceded to an assuming insurer that maintains a trust fund, as specified. This bill would authorize the commissioner to authorize a reduction in the required trustee surplus after an assuming insurer has permanently discontinued underwriting new business secured by the trust for at least 3 full years, as specified. The bill would also enact, only until January 1, 2016, provisions governing the certification and rating of assuming insurers by the commissioner and specify additional circumstances under which credit shall be allowed to a domestic insurer when the reinsurance is ceded to an assuming insurer that has been certified. The bill would require, among other things, that the assuming insurer be domiciled and licensed to transact insurance or reinsurance in a qualified jurisdiction and would require the commissioner to create and publish a list of qualified jurisdictions, as specified. The bill would also require the assuming insurer to maintain minimum capital and surplus, or its equivalent, in an amount determined by the commissioner, and to maintain financial strength ratings from 2 or more rating agencies, as specified. The bill would impose various filing requirements on certified reinsurers, including notification within 10 days of any regulatory actions taken against the certified reinsurer and annual audited financial statements. The bill would also require the commissioner to assign a rating to each certified reinsurer based on specified criteria, such as the certified insurer's financial strength rating from an acceptable rating agency and the certified insurer's reputation for prompt payment of claims. The bill would also authorize the commissioner to suspend or revoke an accredited or certified reinsurer's accreditation or certification after notice and opportunity for hearing, as specified. The bill would make other related changes. (5) Existing law provides that credit for reinsurance as an asset or a deduction from liability is allowed a foreign ceding insurer, with exceptions, to the extent the credit has been allowed by the ceding insurer's state of domicile if the state of domicile is accredited by the National Association of Insurance Commissioners (NAIC) , or the credit or deduction from liability would be allowed if the foreign ceding insurer were domiciled in this state. Credit for reinsurance as an asset or a deduction from liability may be disallowed if the commissioner finds that the financial condition of the reinsurer, or the collateral or other security provided by the reinsurer, does not satisfy the credit for reinsurance requirements applicable to a ceding insurer domiciled in this state. This bill would instead require that credit for reinsurance not be denied a foreign ceding insurer to the extent that credit is recognized by the ceding insurer's domestic state regulator, provided that the domestic state is accredited by the NAIC, or the domestic state regulator has financial solvency requirements similar to the requirements necessary for NAIC accreditation.