Pennsylvania Bulletin, Vol 43, No. 21. May 25, 2013
Jurisdiction | Pennsylvania |
Library | Pennsylvania Register |
Published date | 25 May 2013 |
Year | 2013 |
RULES AND REGULATIONS
Title 31—INSURANCE
INSURANCE DEPARTMENT
[ 31 PA. CODE CH. 161 ]
Requirements for Qualified and Certified Reinsur-
ers
The Insurance Department (Department) amends
Chapter 161 (relating to requirements for qualified and
certified reinsurers) under the authority of sections 206,
506, 1501 and 1502 of The Administrative Code of 1929
(71 P. S. §§ 66, 186, 411 and 412), regarding the general
rulemaking authority of the Department, and section
319.1 of The Insurance Company Law of 1921 (act) (40
P. S. § 442.1), regarding credits for reinsurance.
Purpose
The purpose of this final-form rulemaking is to update
Chapter 161 in accordance with amendments to section
319.1 of the act by the act of July 5, 2012 (P. L. 1111, No .
136) (Act 136), which grants the Insurance Commissioner
(Commissioner) the authority to ‘‘certify’’ reinsurers so
that ceding insurers may receive credit for reinsurance
ceded to duly certified reinsurers. Chapter 161 sets forth
requirements for a licensed ceding insurer to receive
credit for reinsurance in its financial statements. These
amendments were proposed in conjunction with amend-
ments to Chapter 163 (relating to requirements for funds
held as security for the payment of obligations of unli-
censed, unqualified reinsurers).
The amendments to Chapter 161 are based upon recent
amendments to model law and regulation developed by
the National Association of Insurance Commissioners
(NAIC) entitled ‘‘Credit for Reinsurance Model Law’’ (No.
785) and ‘‘Credit for Reinsurance Model Regulation’’ (No.
786). This final-form rulemaking is part of the financial
regulation standards the Department must meet to main-
tain its accreditation by the NAIC. Thus, if a jurisdiction
opts to certify reinsurers, as the Commonwealth has done
with the enactment of Act 136, the standards by which it
does so must be substantially similar to NAIC require-
ments for the jurisdiction to maintain NAIC accredita-
tion.
Comments and Response
Notice of proposed rulemaking was published at 42
Pa.B. 5629 (September 1, 2012) with a 30-day comment
period. Comments were received from the Insurance
Federation of Pennsylvania, Ace Group and Lloyds, Lon-
don expressing support for the proposed rulemaking. The
Ace Group and Lloyds, London emphasized the necessity
that the Department’s regulation be substantially similar
to the NAIC model law and regulation.
A comment from American International Group (AIG)
raised three concerns. AIG noted that the amendments to
section 319.1 of the act by Act 136 did not address the
frequency by which a Commissioner would certify a
reinsurer and requested that the Commissioner imple-
ment a uniform annual date for certifications to be
effective to minimize administrative burden for calculat-
ing collateral requirements for the year. The Department
declined to make this change. The variance of effective
dates of contracts is a contractual issue between a ceding
insurer and reinsurer and is not related to the timing of
the Commissioner’s certification of a reinsurer. Further,
taking a credit for reinsurance is entirely voluntary; if a
ceding insurer would find that the benefit of a credit is
outweighed by the administrative burden of calculating
the credit, it may decline to do so until the reinsurers
with whom it contracts are certified.
AIG suggested that ‘‘catastrophic event’’ be defined as
an event determined by an organization such as the
Property Claims Service or equivalent organization recog-
nized by the Commissioner. The Department amended
§ 161.3b(b)(4) (relating to calculation of credit for reinsur-
ance regarding obligations secured with certified reinsur-
ers) as explained as follows.
AIG expressed its belief that the 1-year deferral in
posting security should not apply to certified reinsurers
that have been assigned a ‘‘Secure 4,’’ ‘‘Secure 5’’ or
‘‘Vulnerable 6’’ rating. The Department declined to make
this change because it would be a significant deviation
from the NAIC model. Additionally, the Department
believes that policyholders are better protected if the
solvency of reinsurers is not jeopardized by treating them
disparately. It should be noted that it is the ceding
insurer’s prerogative to contract with a particular rein-
surer and a ceding insurer is under no obligation to
contract with an insurer who has been assigned a rating.
On October 31, 2012, the Independent Regulatory
Review Commission (IRRC) submitted a comment with
regard to the rulemaking that: (1) requested that the
Department either define ‘‘catastrophic occurrence’’ or
provide an explanation as to its rationale for not doing so;
and (2) noted several cross referencing errors.
In response to IRRC’s comment and the comment from
AIG, the Department added clarifying language to
§ 161.3b(b)(4) to note that when deciding whether to
recognize an event as a catastrophic occurrence, the
Commissioner would do so in consultation with the NAIC
and would consider both natural and human events as
possible catastrophes.
However, the Department declined to provide a specific
definition of ‘‘catastrophic occurrence’’ to maintain consis-
tency with the NAIC model, which intentionally leaves
the term undefined so that the Commissioner can make a
case-by-case determination. ‘‘Catastrophe’’ and ‘‘cata-
strophic occurrence’’ are not capable of objective defini-
tion. Specifically, it is not possible to prospectively create
a definition that would encompass all cases and would
appropriately consider the totality of the circumstances.
With regard to the cross referencing errors referenced
by IRRC, the Department corrected the cross referencing
error in § 161.3b(e).
IRRC also noted that the references in § 161.3a(c)(3)
and (4) (relating to requirements for certified reinsurers)
do not match the corresponding provisions of the NAIC
model regulation. Although the Department does ac-
knowledge that the references do not match the corre-
sponding NAIC model provisions, the Department deter-
mined that the NAIC model references are in error and
that the references are correct.
Specifically, the Department determined that
§ 161.3a(c)(3) properly cross references subsection
(a)(3)(ii), regarding the assigning of a new rating to a
reinsurer that is certified in another jurisdiction. Con-
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PENNSYLVANIA BULLETIN, VOL. 43, NO. 21, MAY 25, 2013
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