TITLE 13 INSURANCE
CHAPTER 2 INSURANCE COMPANY LICENSING AND OPERATION
PART 8 CREDIT
FOR REINSURANCE
13.2.8.1 ISSUING AGENCY: New
Mexico Office of Superintendent of Insurance (“OSI”).
[13.2.8.1 NMAC – Rp,
13.2.8.1, 7/1/2022]
13.2.8.2 SCOPE: This
rule applies to all domestic insurers.
[13.2.8.2 NMAC – Rp,
13.2.8.2, 7/1/2022]
13.2.8.3 STATUTORY
AUTHORITY: Section 59A-2-9 NMSA 1978 and the Credit for
Reinsurance Act (“CFR Act”), Sections 59A-12E-1 to
59A-12E-18
NMSA 1978.
[13.2.8.3 NMAC – Rp,
13.2.8.3, 7/1/2022]
13.2.8.4 DURATION: Permanent.
[13.2.8.4 NMAC – Rp,
13.2.8.4, 7/1/2022]
13.2.8.5 EFFECTIVE
DATE: July 1, 2022, unless a later date is cited at the end
of a section.
[13.2.8.5 NMAC – Rp,
13.2.8.5, 7/1/2022]
13.2.8.6 OBJECTIVE: The purpose of
this rule is to implement the Credit for Reinsurance Act (“CFR Act”), Sections 59A-12E-1 to 59A-12E-18 NMSA 1978.
[13.2.8.6 NMAC – Rp,
13.2.8.6, 7/1/2022]
13.2.8.7 DEFINITIONS: As used in this
rule:
A. “Annual
financial statement" means the statement required by Section 59A-5-29 NMSA 1978.
B. “Beneficiary”
means the entity for whose sole benefit the trust has been established and any
successor of the beneficiary by operation of law, including without limitation
any liquidator, rehabilitator, receiver or conservator except that, if a court
of law appoints a successor in interest to a domestic insurer for whose benefit
a letter of credit qualified under 13.2.8.24 NMAC has been established, then the
named beneficiary includes and is limited to the court-appointed domiciliary
receiver.
C. “Commissioner”
means the individual or regulatory agency in a jurisdiction other than New
Mexico who has jurisdiction over banking, financial services, the business of
insurance, or other relevant business.
D. “Form”
means a form, including any applicable instructions, that is posted on the
official OSI website or, if the form is generated by an agency or entity other
than OSI, an official form to be obtained from such other agency or entity. Forms
AR-1, CR-1, CR-F, CR-S and RJ-1 as referenced in this rule will be posted on
the official OSI website.
E. "Grantor"
means the entity that has established a trust for the sole benefit of the
beneficiary. When established in conjunction with a reinsurance agreement, the
grantor is the unlicensed, unaccredited assuming insurer.
F. "Jurisdiction"
means any state, district or territory of the U.S. and any lawful national
government.
G. "Liabilities"
means the assuming insurer’s gross liabilities attributable to reinsurance
ceded by U.S. domiciled insurers excluding liabilities that are otherwise
secured by acceptable means, and shall include:
(1) for business ceded by domestic insurers authorized to
write accident and health, and property and casualty insurance:
(a) losses and allocated loss expenses
paid by the ceding insurer, recoverable from the assuming insurer;
(b) reserves for losses reported and outstanding;
(c) reserves for losses incurred but not reported;
(d) reserves for allocated loss expenses;
and
(e) unearned premiums; or
(2) for business ceded by domestic insurers authorized to
write life, health and annuity insurance:
(a) aggregate reserves for life policies
and contracts net of policy loans and net due and deferred premiums;
(b) aggregate reserves for accident and
health policies;
(c) deposit funds and other liabilities
without life or disability contingencies; and
(d) liabilities for policy and contract
claims.
H. “Mortgage-related
security" means an obligation that is rated AA or higher (or the
equivalent) by a securities rating agency recognized by the SVO and that
either:
(1) represents ownership of one or more promissory notes or
certificates of interest or participation in the notes (including any rights
designed to assure servicing of, or the receipt or timeliness of receipt by the
holders of the notes, certificates, or participation of amounts payable under,
the notes, certificates, or participation of amounts payable under, the notes,
certificates or participation), that:
(a) are directly secured by a first lien
on a single parcel of real estate, including stock allocated to a dwelling unit
in a residential cooperative housing corporation, upon which is located a
dwelling or mixed residential and commercial structure, or on a residential
manufactured home as defined in 42 U.S.C.A. Section 5402(6), whether the
manufactured home is considered real or personal property under the laws of the
state in which it is located; and
(b) were originated by a savings and loan
association, savings bank, commercial bank, credit union, insurance company, or
similar institution that is supervised and examined by a federal or state
housing authority, or by a mortgagee approved by the secretary of housing and
urban development pursuant to 12 U.S.C.A. Sections 1709 and 1715-b, or, where
the notes involve a lien on the manufactured home, by an institution or by a
financial institution approved for insurance by the secretary of housing and
urban development pursuant to 12 U.S.C.A. Section 1703; or
(2) is secured by one or more promissory
notes or certificates of deposit or participations in the notes (with or
without recourse to the insurer of the notes) and, by its terms, provides for
payments of principal in relation to payments, or reasonable projections of
payments, or notes meeting the requirements of Subparagraph (1)(a) of this Subsection.
I. "NAIC" means the national association
of insurance commissioners.
J. "Obligations" means:
(1) reinsured losses and allocated loss
expenses paid by the ceding company, but not recovered from the assuming insurer;
(2) reserves for reinsured losses
reported and outstanding;
(3) reserves for reinsured losses
incurred but not reported; and
(4) reserves for allocated reinsured loss
expenses and unearned premiums.
K. "OECD"
means the organization for economic cooperation and development.
L. "Promissory
note" when used in connection with a manufactured home, shall also
include a loan, advance or credit sale as evidenced by a retail installment
sales contract or other instrument.
M. “Qualified U.S. financial institution"
has the meaning given in Subsection E of Section 59A-12E-2 NMSA 1978.
N. “Reciprocal
jurisdiction” means a jurisdiction, as designated by the superintendent
pursuant to Subsection D of 13.2.8.16 NMAC, that meets one of the criteria set
forth in Subsection B of 13.2.8.16 NMAC.
P. “Substantially
similar standards" means credit for reinsurance standards which the
superintendent determines are equal to or exceed the standards of the Credit
for Reinsurance Act and this rule.
Q. “Statutory
financial statement” means quarterly, annual or other financial statements
required by state law.
R. "SVO"
means the securities valuation office of the NAIC.
S. "Superintendent" means the
superintendent of insurance, the office of superintendent of insurance or
employees of the office of superintendent of insurance acting within the scope
of the superintendent’s official duties and with the superintendent’s
authorization.
[13.2.8.7 NMAC – Rp,
13.2.8.7, 7/1/2022]
13.2.8.8 CREDIT
FOR REINSURANCE - REINSURER LICENSED IN THIS STATE: Pursuant to Paragraph
(1) of Subsection D of Section 59A-12E-3 NMSA 1978, the superintendent will
allow credit for reinsurance ceded by a domestic insurer to an assuming insurer
that was licensed in this state as of any date on which statutory financial
statement credit for reinsurance is claimed.
[13.2.8.8 NMAC – Rp,
13.2.8.8, 7/1/2022]
13.2.8.9 CREDIT
FOR REINSURANCE - ACCREDITED REINSURERS:
A. Pursuant to Paragraph (1) of Subsection D of Sections 59A-12E-3
and 59A-12E-5 NMSA 1978, the superintendent will allow credit for reinsurance
ceded by a domestic insurer to an assuming insurer that is accredited as a
reinsurer in this state as of the date on which statutory financial statement
credit for reinsurance is claimed. An accredited reinsurer shall:
(1) File a properly executed Form AR-1 as
evidence of its submission to this state’s jurisdiction and to this state’s
authority to examine its books and records;
(2) File with the superintendent a
certified copy of a certificate of authority or other acceptable evidence that
it is licensed to transact insurance or reinsurance in at least one state, or,
in the case of a U.S. branch of an alien assuming insurer, is entered through
and licensed to transact insurance or reinsurance in at least one state;
(3) File annually with the superintendent
a copy of its annual statement filed with the insurance department of its state
of domicile or, in the case of an alien assuming insurer, with the state
through which it is entered and in which it is licensed to transact insurance
or reinsurance, and a copy of its most recent audited financial statement; and
(4) Maintain a surplus as regards
policyholders in an amount not less than $20,000,000, or
obtain the affirmative approval of the superintendent upon a finding that it
has adequate financial capacity to meet its reinsurance obligations and is
otherwise qualified to assume reinsurance from domestic insurers.
B. If the superintendent determines that the assuming
insurer has failed to meet or maintain any of these qualifications, the superintendent
may upon written notice and opportunity for hearing, suspend or revoke the
accreditation. Credit shall not be allowed a domestic ceding insurer under this
section if the assuming insurer’s accreditation has been revoked by the superintendent,
or if the reinsurance was ceded while the assuming insurer’s accreditation was
under suspension by the superintendent.
[13.2.8.9 NMAC – Rp,
13.2.8.9, 7/1/2022]
13.2.8.10 CREDIT FOR REINSURANCE -
REINSURER DOMICILED IN ANOTHER STATE:
A. Pursuant to Paragraph (2) of Subsection D of Section 59A-12E-3
NMSA 1978, the superintendent will allow credit for reinsurance ceded by a
domestic insurer to an assuming insurer that as of any date on which statutory
financial statement credit for reinsurance is claimed:
(1) Is domiciled in (or, in the case of a
U.S. branch of an alien assuming insurer, is entered through) a state that
employs standards regarding credit for reinsurance substantially similar to
those applicable under the Act and this rule;
(2) Maintains a surplus as regards
policyholders in an amount not less than $20,000,000; and
(3) Files a properly executed Form AR-1
with the superintendent as evidence of its submission to this state’s authority
to examine its books and records.
B. The provisions of this Section relating to surplus as
regards policyholders shall not apply to reinsurance ceded and assumed pursuant
to pooling arrangements among insurers in the same holding company system.
[13.2.8.10 NMAC – Rp,
13.2.8.10, 7/1/2022]
13.2.8.11 CREDIT FOR REINSURANCE -
REINSURERS MAINTAINING TRUST FUNDS:
A. Pursuant to Sections 59A-12E-3 and 59A-12E-4 NMSA 1978, the
superintendent will allow credit for reinsurance ceded by a domestic insurer to
an assuming insurer which, as of any date on which statutory financial
statement credit for reinsurance is claimed, and thereafter for so long as
credit for reinsurance is claimed, maintains a trust fund in an amount
prescribed below in a qualified U.S. financial institution as defined in Subsection
E of Section 59A-12-2 NMSA 1978, for the payment of the valid claims of its U.S.
domiciled ceding insurers, their assigns and successors in interest. The
assuming insurer shall report annually to the superintendent substantially the
same information as that required to be reported on the NAIC annual statement
form by licensed insurers, to enable the superintendent to determine the
sufficiency of the trust fund.
B. The following requirements apply to the following
categories of assuming insurer:
(1) The trust fund for a single assuming insurer
shall consist of funds in trust in an amount not less than the assuming
insurer’s liabilities attributable to reinsurance ceded by U.S. domiciled
insurers, and in addition, the assuming insurer shall maintain a trusteed
surplus of not less than $20,000,000, except as provided in Paragraph (2) of
this subsection.
(2) At any time after the assuming
insurer has permanently discontinued underwriting new business secured by the
trust for at least three full years, the superintendent with principal
regulatory oversight of the trust may authorize a reduction in the required trusteed
surplus, but only after a finding, based on an assessment of the risk, that the
new required surplus level is adequate for the protection of U.S. ceding
insurers, policyholders and claimants in light of reasonably foreseeable
adverse loss development. The risk assessment may involve an actuarial review,
including an independent analysis of reserves and cash flows, and shall
consider all material risk factors, including when applicable the lines of
business involved, the stability of the incurred loss estimates and the effect
of the surplus requirements on the assuming insurer’s liquidity or solvency.
The minimum required trusteed surplus may not be reduced to an amount less than
thirty percent of the assuming insurer’s liabilities attributable to reinsurance
ceded by U.S. ceding insurers covered by the trust.
(3) The trust fund for a group including
incorporated and individual unincorporated underwriters shall consist of:
(a) for reinsurance ceded under
reinsurance agreements with an inception, amendment or renewal date on or after
January 1, 1993, funds in trust in an amount not less than the respective
underwriters’ several liabilities attributable to business ceded by U.S.
domiciled ceding insurers to any underwriter of the group;
(b) for reinsurance ceded under
reinsurance agreements with an inception date on or before December 31, 1992,
and not amended or renewed after that date, notwithstanding the other
provisions of this rule, funds in trust in an amount not less than the
respective underwriters’ several insurance and reinsurance liabilities
attributable to business written in the U.S.; and
(c) In addition to these trusts, the
group shall maintain a trusteed surplus of which
$100,000,000 shall
be held jointly for the benefit of the U.S. domiciled ceding insurers of any
member of the group for all the years of account.
(4) The incorporated members of the group
shall not be engaged in any business other than underwriting as a member of the
group and shall be subject to the same level of rule and solvency control by
the group’s domiciliary regulator as are the unincorporated members. The group
shall, within 90 days after its financial statements are due to be filed with
the group’s domiciliary regulator, provide to the superintendent:
(a) an annual certification by the
group’s domiciliary regulator of the solvency of each underwriter member of the
group; or
(b) if a certification is unavailable, a
financial statement, prepared by independent public accountants, of each
underwriter member of the group.
(5) The trust fund for a group of
incorporated insurers under common administration, whose members possess
aggregate policyholders surplus of $10,000,000,000
(calculated and reported in substantially the same manner as prescribed by the
annual statement instructions and Accounting Practices and Procedures Manual of
the NAIC) and which has continuously transacted an insurance business outside
the U.S. for at least three years immediately prior to making application for
accreditation, shall:
(a) consist of funds in trust in an
amount not less than the assuming insurers’ several liabilities attributable to
business ceded by U.S. domiciled ceding insurers to any members of the group
pursuant to reinsurance contracts issued in the name of such group;
(b) maintain a joint trusteed surplus of
which $100,000,000 shall be held jointly for the benefit of U.S. domiciled
ceding insurers of any member of the group; and
(c) file a properly executed Form AR-1 as
evidence of the submission to this state’s authority to examine the books and
records of any of its members and shall certify that any member examined will
bear the expense of any such examination.
(6) Within 90 days after the statements
are due to be filed with the group’s domiciliary regulator, the group shall
file with the superintendent an annual certification of each underwriter
member’s solvency by the member’s domiciliary regulators, and financial
statements, prepared by independent public accountants, of each underwriter
member of the group.
C. Credit for reinsurance shall not be granted unless the
form of the trust and any amendments to the trust have been approved by either
the superintendent of the state where the trust is domiciled or the superintendent
of another state who, pursuant to the terms of the trust instrument, has
accepted responsibility for regulatory oversight of the trust. The form of the
trust and any trust amendments also shall be filed with the superintendent of
every state in which the ceding insurer beneficiaries of the trust are domiciled.
The trust instrument shall provide that:
(1) contested claims shall be valid and
enforceable out of funds in trust to the extent remaining unsatisfied 30 days
after entry of the final order of any court of competent jurisdiction in the U.S.;
(2) legal title to the assets of the
trust shall be vested in the trustee for the benefit of the grantor’s U.S.
ceding insurers, their assigns and successors in interest;
(3) the trust shall be subject to
examination as determined by the superintendent;
(4) the trust shall remain in effect for
as long as the assuming insurer, or any member or former member of a group of
insurers, shall have outstanding obligations under reinsurance agreements
subject to the trust; and
(5) no later than February 28 of each
year the trustee of the trust shall report to the superintendent in writing
setting forth the balance in the trust and listing the trust’s investments at
the preceding year-end, and shall certify the date of
termination of the trust, if so planned, or certify that the trust shall not
expire prior to the following December 31.
D. Notwithstanding any other provisions in the trust
instrument, if the trust fund is inadequate because it contains an amount less
than the amount required by this subsection or if the grantor of the trust has
been declared insolvent or placed into receivership, rehabilitation,
liquidation or similar proceedings under the laws of its state or country of
domicile, the trustee shall comply with an order of the superintendent with
regulatory oversight over the trust or with an order of a court of competent
jurisdiction directing the trustee to transfer to the superintendent with
regulatory oversight over the trust or other designated receiver all of the
assets of the trust fund.
(1) The assets shall be distributed by and claims shall be filed with and valued by the commissioner
with regulatory oversight over the trust in accordance with the laws of the
state in which the trust is domiciled applicable to the liquidation of domestic
insurance companies.
(2) If the commissioner with regulatory
oversight over the trust determines that the assets of the trust fund or any
part thereof are not necessary to satisfy the claims of the U.S. beneficiaries
of the trust, the superintendent with regulatory oversight over the trust shall
return the assets, or any part thereof, to the trustee for distribution in
accordance with the trust agreement.
(3) The grantor shall waive any right
otherwise available to it under U.S. law that is inconsistent with this
provision.
[13.2.8.11 NMAC – Rp,
13.2.8.11, 7/1/2022]
13.2.8.12 INVESTMENT OF TRUST ASSETS:
A. Assets deposited in trusts established pursuant to Subsections
A and B of Section 59A-12E-3 NMSA 1978 and this Section shall be valued
according to their current fair market value and shall consist only of cash in U.S.
dollars, certificates of deposit issued by a qualified U.S. financial
institution as defined in Paragraph (1) of Subsection E of Section 59A-12E-2 NMSA
1978, clean, irrevocable, unconditional and “evergreen” letters of credit
issued or confirmed by such qualified U.S. financial institution, and
investments of the type specified in this subsection, but investments in or
issued by an entity controlling, controlled by or under common control with
either the grantor or beneficiary of the trust shall not exceed five percent of
total investments. No more than twenty percent of the total of the investments
in the trust may be foreign investments authorized under Subparagraph (e) of Paragraphs
(1) or (3) of this subsection or the equity interest requirements of Subsection
B or Subsection D of 13.2.8.12 NMAC, and no more than ten percent of the total
of the investments in the trust may be securities denominated in foreign
currencies. For purposes of applying the preceding sentence, a depository
receipt denominated in U.S. dollars and representing rights conferred by a
foreign security shall be classified as a foreign investment denominated in a
foreign currency. The assets of a trust established to satisfy the requirements
of Subsections A and B of Section 59A-12E-3 NMSA 1978 shall be invested only as
follows:
(1) Government obligations that are not
in default as to principal or interest, that are valid and legally authorized
and that are issued, assumed or guaranteed by:
(a) the U.S. or by any agency or
instrumentality of the U.S.;
(b) a state of the U.S.;
(c) a territory, possession or other
governmental unit of the U.S.;
(d) an agency or instrumentality of a
governmental unit referred to in Subparagraphs (b) and (c) of this paragraph if
the obligations shall be by law (statutory or otherwise) payable, as to both
principal and interest, from taxes levied or by law required to be levied or
from adequate special revenues pledged or otherwise appropriated or by law
required to be provided for making these payments, but shall not be obligations
eligible for investment under this paragraph if payable solely out of special
assessments on properties benefited by local improvements; or
(e) the government of any other country
that is a member of the organization for economic cooperation and development
and whose government obligations are rated A or higher, or the equivalent, by a
rating agency recognized by the securities valuation office of the NAIC.
(2) Obligations that are issued in the U.S.,
or that are dollar denominated and issued in a non-U.S. market, by a solvent U.S.
institution (other than an insurance company) or that are assumed or guaranteed
by a solvent U.S. institution (other than an insurance company) and that are
not in default as to principal or interest if the obligations:
(a) are rated A or higher (or the
equivalent) by a securities rating agency recognized by the securities valuation
office of the NAIC, or if not so rated, are similar in structure and other
material respects to other obligations of the same institution that are so rated;
(b) are insured by at least one
authorized insurer (other than the investing insurer or a parent, subsidiary or
affiliate of the investing insurer) licensed to insure
obligations in this state and, after considering the insurance, are rated AAA
(or the equivalent) by a securities rating agency recognized by the Securities
Valuation Office of the NAIC; or
(c) have been designated as class one or class
two by the securities valuation office of the NAIC;
(3) Obligations issued, assumed or
guaranteed by a solvent non-U.S. institution chartered in a country that is a
member of the organization for economic cooperation and development or
obligations of U.S. corporations issued in a non-U.S. currency, provided that
in either case the obligations are rated A or higher, or the equivalent, by a
rating agency recognized by the securities valuation office of the NAIC.
(4) An investment made pursuant to the
provisions of Paragraph (1), (2) or (3) of this subsection shall be subject to
the following additional limitations:
(a) an investment in or loan upon the
obligations of an institution other than an institution that issues
mortgage-related securities shall not exceed five percent of the assets of the trust;
(b) an investment in any one
mortgage-related security shall not exceed five percent of the assets of the trust;
(c) the aggregate total investment in
mortgage-related securities shall not exceed twenty- five percent of the assets
of the trust; and
(d) preferred or guaranteed shares issued
or guaranteed by a solvent U.S. institution are permissible investments if all of the institution’s obligations are eligible as
investments under Paragraphs (2)(a) and (2)(c) of this subsection but shall not
exceed two percent of the assets of the trust.
B. Equity Interests. Investments in common shares or
partnership interests of a solvent U.S. institution are permissible if:
(1) its obligations and preferred shares,
if any, are eligible as investments under this Subsection; and
(2) the equity interests of the
institution (except an insurance company) are registered on a national
securities exchange as provided in the Securities Exchange Act of 1934, 15 U.S.C.
§§ 78a to 78kk or otherwise registered pursuant to that Act, and if otherwise
registered, price quotations for them are furnished through a nationwide
automated quotations system approved by the financial industry regulatory authority,
or successor organization. A trust shall not invest in equity interests under
this paragraph an amount exceeding one percent of the assets of the trust even
though the equity interests are not so registered and are not issued by an
insurance company.
C. Investments in common shares of a solvent institution
organized under the laws of a country that is a member of the organization for economic
cooperation and development are permissible, if:
(1) All its obligations are rated A or
higher, or the equivalent, by a rating agency recognized by the Securities
Valuation Office of the NAIC; and
(2) The equity interests of the
institution are registered on a securities exchange regulated by the government
of a country that is a member of the organization for economic cooperation and development.
D. An investment in or loan upon any one institution’s
outstanding equity interests shall not exceed one percent of the assets of the
trust. The cost of an investment in equity interests made pursuant to this paragraph,
when added to the aggregate cost of other investments in equity interests then
held pursuant to this paragraph, shall not exceed ten percent of the assets in
the trust.
E. Obligations issued, assumed or guaranteed by a multinational
development bank, provided the obligations are rated A or higher, or the
equivalent, by a rating agency recognized by the Securities Valuation Office of
the NAIC.
F. Investment companies.
(1) Securities of an investment company
registered pursuant to the Investment Company Act of 1940, 15 U.S.C. § 80a, are
permissible investments if the investment company:
(a) invests at least ninety percent of
its assets in the types of securities that qualify as an investment under Paragraphs
(1) through (3) of Subsection D of 13.2.8.11 NMAC or invests in securities that
are determined by the superintendent to be substantively similar
to the types of securities set forth in Paragraphs (1) through (3) of
Subsection D of 13.2.8.11 NMAC; or
(b) invests at least ninety percent of
its assets in the types of equity interests that qualify as an investment under
Subsection (A) of this section.
(2) Investments made by a trust in
investment companies under this rule subsection shall not exceed the following
limitations:
(a) an investment in an investment
company qualifying under Subparagraph (1)(a) of this section shall not exceed
ten percent of the assets in the trust and the aggregate amount of investment
in qualifying investment companies shall not exceed twenty-five percent of the
assets in the trust; and
(b) an investment in an investment
company qualifying under Subparagraph (1)(b) of this section shall not exceed
five percent of the assets in the trust and the aggregate amount of investment
in qualifying investment companies shall be included when calculating the
permissible aggregate value of equity interests pursuant to Subsection A of
this section.
G. Letters of credit.
(1) In order for a letter of credit to
qualify as an asset of the trust, the trustee shall have the right and the
obligation pursuant to the deed of trust or some other binding agreement (as
duly approved by the superintendent), to immediately draw down the full amount
of the letter of credit and hold the proceeds in trust for the beneficiaries of
the trust if the letter of credit will otherwise expire without being renewed
or replaced.
(2) The trust agreement shall provide
that the trustee shall be liable for its negligence, willful misconduct or lack
of good faith. The failure of the trustee to draw against the letter of credit
in circumstances where such draw would be required shall be deemed to be
negligence and/or willful misconduct.
H. A specific security provided to a ceding insurer by an
assuming insurer pursuant to 13.2.8.18 NMAC shall be applied, until exhausted,
to the payment of liabilities of the assuming insurer to the ceding insurer
holding the specific security prior to, and as a condition precedent for,
presentation of a claim by the ceding insurer for payment by a trustee of a
trust established by the assuming insurer pursuant to this Section.
[13.2.8.12 NMAC –
N, 7/1/2022]
13.2.8.13 CREDIT FOR REINSURANCE –
CERTIFIED REINSURERS:
A. Pursuant to Sections 59A-12E-7 through 59A-12E-9 NMSA
1978, the superintendent will allow credit for reinsurance ceded by a domestic
insurer to an assuming insurer that has been certified as a
reinsurer in this state at all times for which statutory financial
statement credit for reinsurance is claimed under this Section or 13.2.8.14 NMAC.
The credit allowed shall be based upon the security held by or on behalf of the
ceding insurer in accordance with a rating assigned to the certified reinsurer
by the superintendent. The security shall be in a form consistent with the
provisions of Sections 59A-12E-7 through 59A-12E-9 and Section 59A-12E-16 NMSA
1978 and 13.2.8.19 through 13.2.8.26 NMAC. The amount of security required in order for full credit to be allowed shall correspond with
the following requirements:
Ratings Security Required
|
Secure – 1 |
0% |
|
Secure – 2 |
10% |
|
Secure – 3 |
20% |
|
Secure – 4 |
50% |
|
Secure – 5 |
75% |
|
Vulnerable – 6 |
100% |
B. Affiliated reinsurance transactions shall receive the
same opportunity for reduced security requirements as all other reinsurance
transactions.
C. The superintendent will require the certified reinsurer
to post one hundred percent, for the benefit of the ceding insurer or its estate,
security upon the entry of an order of rehabilitation, liquidation or
conservation against the ceding insurer.
D. In order to facilitate the prompt
payment of claims, a certified reinsurer shall not be required to post security
for catastrophe recoverables for a period of one year
from the date of the first instance of a liability reserve entry by the ceding
company as a result of a loss from a catastrophic occurrence as recognized by
the superintendent. The one-year deferral period is contingent upon the
certified reinsurer continuing to pay claims in a timely manner. Reinsurance recoverables for only the following lines of business as
reported on the NAIC annual financial statement related specifically to the
catastrophic occurrence will be included in the deferral:
(1) Line 1: Fire;
(2) Line 2: Allied lines;
(3) Line 3: Farmowners
multiple peril
(4) Line 4: Homeowners multiple peril;
(5) Line 5: Commercial multiple peril;
(6) Line 9: Inland marine;
(7) Line 12: Earthquake; and
(8) Line 21: Auto physical damage.
E. Credit for reinsurance under this section shall apply
only to reinsurance contracts entered into or renewed
on or after the effective date of the certification of the assuming insurer.
Any reinsurance contract entered into prior to the
effective date of the certification of the assuming insurer that is
subsequently amended after the effective date of the certification of the
assuming insurer, or a new reinsurance contract, covering any risk for which
collateral was provided previously, shall only be subject to this section with
respect to losses incurred and reserves reported from and after the effective
date of the amendment or new contract.
F. Nothing in this section shall prohibit the parties to a
reinsurance agreement from agreeing to provisions establishing security
requirements that exceed the minimum security
requirements established for certified reinsurers under this Section.
[13.2.8.13 NMAC – Rp,
13.2.8.12, 7/1/2022]
13.2.8.14 CERTIFICATION PROCEDURE:
A. The superintendent will post notice on the OSI website
promptly upon receipt of any application for certification, including
instructions on how members of the public may respond to the application. The
superintendent will not take final action on the application until at least 30
days after posting the notice required by this paragraph.
B. The superintendent will issue written notice to an
assuming insurer that has made application and been approved as a certified
reinsurer. Included in such notice shall be the rating assigned the certified
reinsurer in accordance with 13.2.8.13 NMAC. The superintendent will publish a
list of all certified reinsurers and their ratings.
C. In order to be eligible for certification, the assuming
insurer shall meet the following requirements:
(1) the assuming insurer shall be
domiciled and licensed to transact insurance or reinsurance in a Qualified
Jurisdiction, as determined by the superintendent pursuant to 13.2.8.15 NMAC;
(2) the assuming insurer shall maintain
capital and surplus, or its equivalent, of no less than $250,000,000 calculated
in accordance with Subsection E, Paragraph (8) of this section. This
requirement may also be satisfied by an association including incorporated and
individual unincorporated underwriters having minimum capital and surplus
equivalents (net of liabilities) of at least $250,000,000 and a central fund
containing a balance of at least $250,000,000;
(3) the assuming insurer shall maintain
financial strength ratings from two or more rating agencies deemed acceptable
by the superintendent. These ratings shall be based on interactive
communication between the rating agency and the assuming insurer and shall not
be based solely on publicly available information. These financial strength
ratings will be one factor used by the superintendent in determining the rating
that is assigned to the assuming insurer. Acceptable rating agencies include
the following:
(a) Standard & Poor’s;
(b) Moody’s investors service;
(c) Fitch ratings;
(d) A.M. Best company; or
(e) Any other nationally recognized statistical
rating organization.
D. The certified reinsurer shall comply with any other
requirements reasonably imposed by the superintendent.
E. Each certified reinsurer shall be rated on a legal entity
basis, with due consideration being given to the group rating where
appropriate, except that an association including incorporated and individual
unincorporated underwriters that has been approved to do business as a single
certified reinsurer may be evaluated on the basis of
its group rating. Factors that may be considered as part of the evaluation
process include, but are not limited to, the following:
(1) The certified reinsurer’s financial
strength rating from an acceptable rating agency. The maximum rating that a
certified reinsurer may be assigned will correspond to its financial strength
rating as outlined in the table below. The superintendent will use the lowest
financial strength rating received from an approved rating agency in
establishing the maximum rating of a certified reinsurer. A failure to obtain
or maintain at least two financial strength ratings from acceptable rating
agencies will result in loss of eligibility for certification:
|
Ratings |
Best |
S&P |
Moody’s |
Fitch |
|
Secure – 1 |
A++ |
AAA |
Aaa |
AAA |
|
Secure – 2 |
A+ |
AA+, AA, AA- |
Aa1, Aa2, Aa3 |
AA+, AA, AA- |
|
Secure – 3 |
A |
A+, A |
A1, A2 |
A+, A |
|
Secure – 4 |
A- |
A- |
A3 |
A- |
|
Secure – 5 |
B++, B+ |
BBB+, BBB, BBB- |
Baa1, Baa2, Baa3 |
BBB+, BBB, BBB- |
|
Vulnerable – 6 |
B, B-C++, C+, C, C-, D, E, F |
BB+, BB, BB-, B+, B, B-, CCC,
CC, C, D, R |
Ba1, Ba2, Ba3,
B1, B2, B3, Caa, Ca, C |
BB+, BB, BB-,
B+, B, B-, CCC+, CC, CCC-, DD |
(2) the business practices of the
certified reinsurer in dealing with its ceding insurers, including its record
of compliance with reinsurance contractual terms and obligations;
(3) for certified reinsurers domiciled in
the U.S., a review of the most recent applicable NAIC Annual Statement Blank,
either Schedule F (for property/casualty reinsurers) or Schedule S (for life
and health reinsurers);
(4) for certified reinsurers not
domiciled in the U.S., a review annually of Form CR-F (for property/casualty
reinsurers) or Form CR-S (for life and health reinsurers);
(5) the reputation of the certified
reinsurer for prompt payment of claims under reinsurance agreements, based on
an analysis of ceding insurers’ Schedule F reporting of overdue reinsurance recoverables, including the proportion of obligations that
are more than 90 days past due or are in dispute, with specific attention given
to obligations payable to companies that are in administrative supervision or receivership;
(6) regulatory actions against the
certified reinsurer;
(7) the report of the independent auditor
on the financial statements of the insurance enterprise, on the basis described
in Paragraph (8) below;
(8) for certified reinsurers not
domiciled in the U.S., audited financial statements, regulatory filings, and
actuarial opinion (as filed with the non-U.S. jurisdiction supervisor, with a
translation into English). Upon the initial application for certification, the
superintendent will consider audited financial statements for the last two
years filed with its non-U.S. jurisdiction supervisor;
(9) the liquidation priority of
obligations to a ceding insurer in the certified reinsurer’s domiciliary
jurisdiction in the context of an insolvency proceeding;
(10) a certified reinsurer’s participation
in any solvent scheme of arrangement, or similar procedure, which involves U.S.
ceding insurers. The superintendent shall receive prior notice from a certified
reinsurer that proposes participation by the certified reinsurer in a solvent
scheme of arrangement; and
(11) Any other information deemed relevant
by the superintendent.
F. Based on the analysis conducted under Paragraph (5) of Subsection E of 13.2.8.14 NMAC of a
certified reinsurer’s reputation for prompt payment of claims, the
superintendent may make appropriate adjustments in the security the certified
reinsurer is required to post to protect its liabilities to U.S. ceding
insurers, provided that the superintendent will, at a minimum, increase the
security the certified reinsurer is required to post by one rating level under
Paragraph (1) of Subsection E of 13.2.8.14 NMAC if the superintendent finds
that:
(1) more than fifteen percent of the
certified reinsurer’s ceding insurance clients have overdue reinsurance recoverables on paid losses of 90 days or more which are
not in dispute and which exceed $100,000 for each
cedent; or
(2) the aggregate amount of reinsurance recoverables on paid losses which are not in dispute that
are overdue by 90 days or more exceeds $50,000,000.
G. The assuming insurer shall submit a properly executed
Form CR-1 as evidence of its submission to the jurisdiction of this state,
appointment of the superintendent as an agent for service of process in this
state, and agreement to provide security for one hundred percent of the
assuming insurer’s liabilities attributable to reinsurance ceded by U.S. ceding
insurers if it resists enforcement of a final U.S. judgment. The superintendent
shall not certify any assuming insurer that is domiciled in a jurisdiction that
the superintendent has determined does not adequately and promptly enforce
final U.S. judgments or arbitration awards.
H. The certified reinsurer shall agree to meet applicable
information filing requirements as determined by the superintendent, both with
respect to an initial application for certification and on an ongoing basis.
All information submitted by certified reinsurers which are not otherwise
public information subject to disclosure shall be exempted from disclosure
under the Inspection of Public Records Act, Chapter 14, Article 4 NMSA 1978,
and shall be withheld from public disclosure. The applicable information filing
requirements are, as follows:
(1) notification within 10 days of any
regulatory actions taken against the certified reinsurer, any change in the
provisions of its domiciliary license or any change in rating by an approved
rating agency, including a statement describing such changes and the reasons
therefor; annually, Form CR-F or CR-S, as applicable;
(2) annually, the report of the
independent auditor on the financial statements of the insurance enterprise, on
the basis described in Paragraph (3) below;
(3) annually, the most recent audited
financial statements, regulatory filings, and actuarial opinion (as filed with
the certified reinsurer’s supervisor, with a translation into English). Upon
the initial certification, audited financial statements for the last two years
filed with the certified reinsurer’s supervisor;
(4) at least annually, an updated list of
all disputed and overdue reinsurance claims regarding reinsurance assumed from
U.S. domestic ceding insurers;
(5) a certification from the certified
reinsurer’s domestic regulator that the certified reinsurer is in good standing
and maintains capital in excess of the jurisdiction’s highest regulatory action
level; and
(6) Any other information that the
superintendent may reasonably require.
I. Change in rating or revocation of certification. In the
case of a downgrade by a rating agency or other disqualifying circumstance, the
superintendent shall upon written notice assign a new rating to the certified
reinsurer in accordance with the requirements of Paragraph (1) of Subsection E
of 13.2.8.14 NMAC.
(1) The superintendent shall have the
authority to suspend, revoke, or otherwise modify a certified reinsurer’s
certification at any time if the certified reinsurer fails to meet its
obligations or security requirements under this section, or if other financial
or operating results of the certified reinsurer, or documented significant
delays in payment by the certified reinsurer, lead the superintendent to
reconsider the certified reinsurer’s ability or willingness to meet its contractual
obligations.
(2) If the rating of a certified
reinsurer is upgraded by the superintendent, the certified reinsurer may meet
the security requirements applicable to its new rating on a prospective basis,
but the superintendent shall require the certified reinsurer to post security
under the previously applicable security requirements as to all contracts in
force on or before the effective date of the upgraded rating. If the rating of
a certified reinsurer is downgraded by the superintendent, the superintendent
shall require the certified reinsurer to meet the security requirements
applicable to its new rating for all business it has assumed as a certified
reinsurer.
(3) Upon revocation of the certification
of a certified reinsurer by the superintendent, the assuming insurer shall be
required to post security in accordance with 13.2.8.18 NMAC in
order for the ceding insurer to continue to take credit for reinsurance
ceded to the assuming insurer. If funds continue to be held in trust in
accordance with 13.2.8.11 and 13.2.8.12 NMAC, the superintendent may allow
additional credit equal to the ceding insurer’s pro rata share of such funds,
discounted to reflect the risk of uncollectibility
and anticipated expenses of trust administration. Notwithstanding the change of
a certified reinsurer’s rating or revocation of its certification, a domestic
insurer that has ceded reinsurance to that certified reinsurer may not be
denied credit for reinsurance for a period of three months for all reinsurance
ceded to that certified reinsurer, unless the reinsurance is found by the
superintendent to be at high risk of uncollectibility.
[13.2.8.14 NMAC – Rp,
13.2.8.14, 7/1/2022]
13.2.8.15 QUALIFIED JURISDICTIONS: If, upon conducting an evaluation under this section
with respect to the reinsurance supervisory system of any non-U.S. assuming
insurer, the superintendent determines that the jurisdiction qualifies to be
recognized as a qualified jurisdiction, the superintendent will publish notice
and evidence of such recognition in an appropriate manner. The superintendent
may establish a procedure to withdraw recognition of those jurisdictions that
are no longer qualified.
A. In order to
determine whether the domiciliary jurisdiction of a non-U.S. assuming insurer
is eligible to be recognized as a qualified jurisdiction, the superintendent
will evaluate the reinsurance supervisory system of the non-U.S. jurisdiction,
both initially and on an ongoing basis, and consider the rights, benefits and
the extent of reciprocal recognition afforded by the non-U.S. jurisdiction to
reinsurers licensed and domiciled in the U.S. The superintendent will determine
the appropriate approach for evaluating the qualifications of such jurisdictions, and create and publish a list of
jurisdictions whose reinsurers may be approved by the superintendent as
eligible for certification. A qualified jurisdiction shall agree to share
information and cooperate with the superintendent with respect to all certified
reinsurers domiciled within that jurisdiction. Additional factors to be
considered in determining whether to recognize a qualified jurisdiction, in the
discretion of the superintendent, include but are not limited to the following:
(1) the
framework under which the assuming insurer is regulated;
(2) the structure and authority of the
domiciliary regulator with regard to solvency regulation requirements and
financial surveillance;
(3) the substance of financial and
operating standards for assuming insurers in the domiciliary jurisdiction;
(4) the form and substance of financial
reports required to be filed or made publicly available by reinsurers in the
domiciliary jurisdiction and the accounting principles used;
(5) the domiciliary regulator’s
willingness to cooperate with U.S. regulators in general and the superintendent
in particular;
(6) the history of performance by
assuming insurers in the domiciliary jurisdiction;
(7) any documented evidence of
substantial problems with the enforcement of final U.S. judgments in the
domiciliary jurisdiction. A jurisdiction will not be considered to be a
qualified jurisdiction if the superintendent has determined that it does not
adequately and promptly enforce final U.S. judgments or arbitration awards;
(8) any relevant international standards
or guidance with respect to mutual recognition of reinsurance supervision
adopted by the international association of insurance supervisors or successor
organization; and
(9) any other matters deemed relevant by
the superintendent.
B. A list of qualified jurisdictions
shall be published through the NAIC committee process. The superintendent will
consider this list in determining qualified jurisdictions. If the
superintendent approves a jurisdiction as qualified that does not appear on the
list of qualified jurisdictions, the superintendent will provide thoroughly
documented justification with respect to the criteria provided under Paragraphs
(1) to (9) of this subsection.
C. U.S. jurisdictions that meet the
requirements for accreditation under the NAIC financial standards and
accreditation program shall be recognized as qualified jurisdictions.
D. Recognition of certification issued
by an NAIC accredited jurisdiction.
(1) If an applicant for certification has
been certified as a reinsurer in an NAIC accredited jurisdiction, the
superintendent has the discretion to defer to that jurisdiction’s
certification, and to defer to the rating assigned by that jurisdiction, if the
assuming insurer submits a properly executed Form CR- 1 and such additional
information as the superintendent requires. The assuming insurer shall be considered to be a certified reinsurer in this state.
(2) Any change in the certified
reinsurer’s status or rating in the other jurisdiction shall apply
automatically in this state as of the date it takes effect in the other
jurisdiction. The certified reinsurer shall notify the superintendent of any
change in its status or rating within 10 days after receiving notice of the
change.
(3) The superintendent may withdraw
recognition of the other jurisdiction’s rating at any time and assign a new
rating in accordance with Subsection I of 13.2.8.14
NMAC.
(4) The superintendent may withdraw
recognition of the other jurisdiction’s certification at any time, with written
notice to the certified reinsurer. Unless the superintendent suspends or
revokes the certified reinsurer’s certification in accordance with Subsection I
of 13.2.8.14 NMAC, the certified reinsurer’s certification shall remain in good
standing in this state for a period of three months, which shall be extended if
additional time is necessary to consider the assuming insurer’s application for
certification in this state.
E. Mandatory funding clause. In
addition to the clauses required under 13.2.8.27 NMAC, reinsurance contracts entered into or renewed under this section shall include a
proper funding clause, which requires the certified reinsurer to provide and
maintain security in an amount sufficient to avoid the imposition of any
financial statement penalty on the ceding insurer under this section for
reinsurance ceded to the certified reinsurer.
F. The superintendent will comply with
all reporting and notification requirements that may be established by the NAIC
with respect to certified reinsurers and qualified jurisdictions.
[13.2.8.15 NMAC – Rp, 13.2.8.15, 7/1/2022]
13.2.8.16 CREDIT FOR REINSURANCE—RECIPROCAL
JURISDICTIONS:
A. In accordance with Sections 59A-12E-10 through 59A-12E-12
and Subsections (A) through (D) of Section 59A-12E-13 NMSA 1978, the
superintendent will allow credit for reinsurance ceded by a domestic insurer to
an assuming insurer that is licensed to write reinsurance by, and has its head
office or is domiciled in, a reciprocal Jurisdiction, and that meets the other
requirements of this rule.
B. A reciprocal jurisdiction shall be one of the following:
(1) a non-U.S. jurisdiction that is
subject to an in-force covered agreement with the U.S., each within its legal
authority, or, in the case of a covered agreement between the U.S. and the
European Union, is a member state of the European Union. For purposes of this
Subsection, a “covered agreement” is an agreement entered into pursuant to the
Dodd-Frank Wall Street Reform and Consumer Protection Act, 31 U.S.C. §§ 313 and
314, that is currently in effect or in a period of provisional application and
addresses the elimination, under specified conditions, of collateral
requirements as a condition for entering into any reinsurance agreement with a
ceding insurer domiciled in this state or for allowing the ceding insurer to
recognize credit for reinsurance;
(2) a U.S. jurisdiction that meets the
requirements for accreditation under the NAIC financial standards and
accreditation program; or
(3) a qualified jurisdiction, as
determined by the superintendent pursuant to Section 59A-12E-8 and Subsection A
of Section 59A-12E-9 NMSA 1978 and Subsections A and B of 13.2.8.15 NMAC, and
Paragraph (1) of Subsection C of 13.2.8.15 NMAC which is not otherwise
described in Paragraph (1) or (2) of this Subsection and which the
superintendent determines meets all of the following
additional requirements:
(a) provides that an insurer which has
its head office or is domiciled in such qualified jurisdiction shall receive
credit for reinsurance ceded to a U.S.-domiciled assuming insurer in the same
manner as credit for reinsurance is received for reinsurance assumed by
insurers domiciled in such qualified jurisdiction;
(b) does not require a U.S.-domiciled
assuming insurer to establish or maintain a local presence as a condition for
entering into a reinsurance agreement with any ceding insurer subject to rule
by the non-U.S. jurisdiction or as a condition to allow the ceding insurer to
recognize credit for such reinsurance;
(c) recognizes the U.S. state regulatory
approach to group supervision and group capital, by providing written
confirmation by a competent regulatory authority, in such qualified
jurisdiction, that insurers and insurance groups that are domiciled or maintain
their headquarters in this state or another jurisdiction accredited by the NAIC
shall be subject only to worldwide prudential insurance group supervision
including worldwide group governance, solvency and capital, and reporting, as
applicable, by the superintendent of this state or the superintendent of the
domiciliary state and will not be subject to group supervision at the level of
the worldwide parent undertaking of the insurance or reinsurance group by the
qualified jurisdiction; provided, that nothing in this subparagraph shall
enhance or limit the authority of the superintendent with respect to the
group-wide supervision of insurance holding company systems pursuant to the
Insurance Holding Company Law, Chapter 59A, Article 37 NMSA 1978, the rules
implementing that law, Title 13, Ch. 2, Part 2 NMAC, Insurance Holding
Companies, or other applicable state law; and
(d) provides written confirmation by a
competent regulatory authority in such qualified jurisdiction that information
regarding insurers and their parent, subsidiary, or affiliated entities, if
applicable, shall be provided to the superintendent in accordance with a memorandum
of understanding or similar document between the superintendent and such
qualified jurisdiction, including but not limited to the International
Association of Insurance Supervisors Multilateral Memorandum of Understanding
or other multilateral memoranda of understanding coordinated by the NAIC.
C. Credit shall be allowed when the reinsurance is ceded
from an insurer domiciled in this state to an assuming insurer meeting each of
the following conditions:
(1) the assuming insurer shall be
licensed to transact reinsurance by, and have its head office or be domiciled
in, a reciprocal jurisdiction;
(2) the assuming insurer shall have and
maintain on an ongoing basis minimum capital and surplus, or its equivalent,
calculated on at least an annual basis as of the preceding December 31 or at
the annual date otherwise statutorily reported to the reciprocal jurisdiction,
and confirmed as set forth in Paragraph (10) of this subsection, according to
the methodology of its domiciliary jurisdiction, in the following amounts:
(a) no less than $250,000,000; or
(b) if the assuming insurer is an
association, including incorporated and individual unincorporated underwriters:
(i) minimum
capital and surplus equivalents (net of liabilities) or own funds of the equivalent
of at least $250,000,000; and
(ii) a central fund containing a balance
of the equivalent of at least $250,000,000;
(c) the assuming insurer shall have and
maintain on an ongoing basis a minimum solvency or capital ratio, as
applicable, as follows:
(i) if
the assuming insurer has its head office or is domiciled in a Reciprocal
Jurisdiction as defined in Paragraph (1) of Subsection B of 13.2.8.16 NMAC, the
ratio specified in the applicable covered agreement;
(ii) if the assuming insurer is domiciled
in a Reciprocal Jurisdiction as defined in Paragraph (2) of Subsection B of
13.2.8.16 NMAC, a risk-based capital (RBC) ratio of three hundred percent of
the authorized control level, calculated in accordance with the formula
developed by the NAIC; or
(iii) if the assuming insurer is domiciled in
a reciprocal jurisdiction as defined in Paragraph (3) of Subsection B of
13.2.8.16 NMAC, after consultation with the Reciprocal Jurisdiction and
considering any recommendations published through the NAIC committee process,
such solvency or capital ratio as the superintendent determines to be an
effective measure of solvency.
(3) The assuming insurer shall agree to
and provide adequate assurance, in the form of a properly executed Form RJ-1,
of its agreement to the following:
(a) the assuming insurer shall agree to
provide prompt written notice and explanation to the superintendent if it falls
below the minimum requirements set forth in Paragraph (2) of this subsection,
or if any regulatory action is taken against it for serious noncompliance with
applicable law; and
(b) the assuming insurer shall consent in
writing to the jurisdiction of the courts of this state and to the appointment
of the superintendent as agent for service of process.
(i) The
superintendent may also require that such consent be provided and included in
each reinsurance agreement under the superintendent’s jurisdiction.
(ii) Nothing in this provision shall limit
or in any way alter the capacity of parties to a reinsurance agreement to agree
to alternative dispute resolution mechanisms, except to the extent such
agreements are unenforceable under applicable insolvency or delinquency laws.
(4) The assuming insurer shall consent in
writing to pay all final judgments, wherever enforcement is sought, obtained by
a ceding insurer, that have been declared enforceable in the territory where
the judgment was obtained.
(5) Each reinsurance agreement shall
include a provision requiring the assuming insurer to provide security in an
amount equal to one hundred percent of the assuming insurer’s liabilities
attributable to reinsurance ceded pursuant to that agreement if the assuming
insurer resists enforcement of a final judgment that is enforceable under the
law of the jurisdiction in which it was obtained or a properly enforceable
arbitration award, whether obtained by the ceding insurer or by its legal
successor on behalf of its estate, if applicable.
(6) The assuming insurer shall confirm
that it is not presently participating in any solvent scheme of arrangement,
which involves this state’s ceding insurers, and agrees to notify the ceding
insurer and the superintendent and to provide one hundred percent security to
the ceding insurer consistent with the terms of the scheme, should the assuming
insurer enter into such a solvent scheme of
arrangement. Such security shall be in a form consistent with the provisions of
Sections 59A-12E-7 through 59A-12E-9 and Section 59A-12E-16 NMSA 1978 and
13.2.8.19 through 13.2.8.26 NMAC.
(7) The assuming insurer shall agree in
writing to meet the applicable information filing requirements as set forth in
Paragraph (8) of this subsection.
(8) The assuming insurer or its legal
successor shall provide, if requested by the superintendent, on behalf of
itself and any legal predecessors, the following documentation to the
superintendent:
(a) for the two years preceding entry
into the reinsurance agreement and on an annual basis thereafter, the assuming
insurer’s annual audited financial statements, in accordance with the
applicable law of the jurisdiction of its head office or domiciliary
jurisdiction, as applicable, including the external audit report;
(b) for the two years preceding entry
into the reinsurance agreement, the solvency and financial condition report or
actuarial opinion, if filed with the assuming insurer’s supervisor;
(c) prior to entry into the reinsurance
agreement and not more than semi-annually thereafter, an updated list of all
disputed and overdue reinsurance claims outstanding for 90 days or more,
regarding reinsurance assumed from ceding insurers domiciled in the U.S.; and
(d) prior to entry into the reinsurance
agreement and not more than semi-annually thereafter, information regarding the
assuming insurer’s assumed reinsurance by ceding insurer, ceded reinsurance by
the assuming insurer, and reinsurance recoverable on paid and unpaid losses by
the assuming insurer to allow for the evaluation of the criteria set forth in Paragraph
(9) of this subsection.
(9) The assuming insurer shall maintain a
practice of prompt payment of claims under reinsurance agreements. The lack of
prompt payment will be evidenced if any of the following criteria is met:
(a) more than fifteen percent of the
reinsurance recoverables from the assuming insurer
are overdue and in dispute as reported to the superintendent;
(b) more than fifteen percent of the
assuming insurer’s ceding insurers or reinsurers have overdue reinsurance
recoverable on paid losses of 90 days or more which are not in dispute and which exceed for each ceding insurer $100,000,
or as otherwise specified in a covered agreement; or
(c) the aggregate amount of reinsurance
recoverable on paid losses which are not in dispute, but are overdue by 90 days
or more, exceeds $50,000,000, or as otherwise specified in a covered agreement.
(10) The assuming insurer’s supervisory
authority shall confirm to the superintendent on an annual basis that the
assuming insurer complies with the requirements set forth in Paragraph (2) of
this Subsection. (11) Nothing in this provision
precludes an assuming insurer from providing the superintendent with
information on a voluntary basis.
D. The superintendent will timely create and publish a list
of reciprocal jurisdictions.
E. A list of reciprocal jurisdictions is published through
the NAIC Committee Process. The superintendent’s list shall include any
Reciprocal Jurisdiction as defined in Paragraphs (1) and (2) of Subsection B of
13.2.8.16 NMAC, and shall consider any other
reciprocal jurisdiction included on the NAIC list. The superintendent may
approve a jurisdiction that does not appear on the NAIC list of reciprocal
jurisdictions as provided by applicable law, rule, or in accordance with
criteria published through the NAIC Committee Process.
F. The superintendent may remove a jurisdiction from the
list of reciprocal jurisdictions upon a determination that the jurisdiction no
longer meets one or more of the requirements of a reciprocal jurisdiction, as
provided by applicable law, rule, or in accordance with a process published
through the NAIC Committee Process, except that the superintendent shall not
remove from the list a reciprocal jurisdiction that meets the criteria of
Paragraph (1) or Paragraph (2) of Subsection B of 13.2.8.16 NMAC. Upon removal
of a reciprocal jurisdiction from the list, credit for reinsurance ceded to an
assuming insurer domiciled in that jurisdiction shall be allowed if otherwise
allowed pursuant to the CFR Act and this rule.
G. The superintendent will timely create and publish a list
of assuming insurers that have satisfied the conditions set forth in this
section and to which cessions shall be granted credit in accordance with this
section.
H. If an NAIC accredited jurisdiction has determined that
the conditions set forth in Subsection C of this section have been met, the
superintendent has the discretion to defer to that jurisdiction’s determination, and add such assuming insurer to the list of
assuming insurers to which cessions shall be granted credit in accordance with
this subsection. The superintendent may accept financial documentation filed
with another NAIC accredited jurisdiction or with the NAIC in satisfaction of
the requirements of Subsection C.
I. When requesting that the superintendent defer to another
NAIC accredited jurisdiction’s determination, an assuming insurer shall submit
a properly executed Form RJ-1 and additional information as the superintendent
may require. A state that has received such a request will notify other states
through the NAIC Committee Process and provide relevant information with
respect to the determination of eligibility.
J. If the superintendent determines that an assuming
insurer no longer meets one or more of the requirements under this section, the
superintendent may revoke or suspend the eligibility of the assuming insurer
for recognition under this section, and:
(1) while an assuming insurer’s
eligibility is suspended, no reinsurance agreement issued, amended or renewed
after the effective date of the suspension qualifies for credit except to the
extent that the assuming insurer’s obligations under the contract are secured
in accordance with 13.2.8.18 NMAC; and
(2) 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 prior to 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 superintendent and consistent with the provisions of 13.2.8.18 NMAC.
K. Before denying statement credit or imposing a requirement
to post security with respect to Subsection J of this Section or adopting any
similar requirement that will have substantially the same regulatory impact as
security, the superintendent will:
(1) communicate with the ceding insurer,
the assuming insurer, and the assuming insurer’s supervisory authority that the
assuming insurer no longer satisfies one of the conditions listed in Subsection
C of this Section;
(2) provide the assuming insurer with 30
days from the initial communication to submit a plan to remedy the defect, and
90 days from the initial communication to remedy the defect, except in
exceptional circumstances in which a shorter period is necessary for
policyholder and other consumer protection;
(3) after the expiration of 90 days or
less, as set out in Paragraph (2) above, if the superintendent determines that
no or insufficient action was taken by the assuming insurer, the superintendent
may impose any of the requirements as set out in this subsection; and
(4) provide a written explanation to the
assuming insurer of any of the requirements set out in this subsection.
L. If subject to a legal process of rehabilitation,
liquidation or conservation, as applicable, the ceding insurer, or its
representative, may seek and, if determined appropriate by the court in which
the proceedings are pending, may obtain an order requiring that the assuming
insurer post security for all outstanding liabilities.
M. Nothing in this section shall authorize an assuming
insurer to withdraw or reduce the security provided under any reinsurance
agreement except as permitted by the terms of the agreement.
N. Nothing in this section shall limit, or in any way alter,
the capacity of parties to any reinsurance agreement to renegotiate the
agreement.
[13.2.8.16 NMAC– Rp,
13.2.8.16, 7/1/2022]
13.2.8.17 CREDIT
FOR REINSURANCE REQUIRED BY LAW: Pursuant to Subsection E of Section 59A-12E-13 NMSA,
the superintendent will allow credit for reinsurance ceded by a domestic
insurer to an assuming insurer not meeting the requirements of Sections 59A-12E-3
through 59A-12E-13 NMSA 1978, but only as to the insurance of risks located in
jurisdictions where the reinsurance is required by the applicable law or rule
of that jurisdiction.
[13.2.8.17 NMAC – Rp,
13.2.8.13, 7/1/2022]
13.2.8.18 ASSET OR REDUCTION FROM LIABILITY
FOR REINSURANCE CEDED TO AN UNAUTHORIZED ASSUMING INSURER NOT MEETING THE
REQUIREMENTS OF SECTIONS 13.2.8.8 THROUGH 13.2.8.17 NMAC:
A. Pursuant to Section 59A-12E-6 NMSA 1978, the
superintendent will allow a reduction from liability for reinsurance ceded by a
domestic insurer to an assuming insurer not meeting the requirements of Sections
59A-12E-3 through 59A-12E-15 NMSA 1978 in an amount not exceeding the
liabilities carried by the ceding insurer. The reduction shall be in the amount
of funds held by or on behalf of the ceding insurer, including funds held in
trust for the exclusive benefit of the ceding insurer, under a reinsurance contract
with such assuming insurer as security for the payment of obligations under the
reinsurance contract. The security shall be held in the U.S. subject to
withdrawal solely by, and under the exclusive control of, the ceding insurer
or, in the case of a trust, held in a qualified U.S. financial institution as
defined in Paragraph (2) of Subsection E of Section 59A-12E-2 NMSA 1978.
This
security may be in the form of any of the following:
(1) cash;
(2) securities listed by the Securities
Valuation Office of the NAIC, including those deemed exempt from filing as
defined by the Purposes and Procedures Manual of the Securities Valuation
Office, and qualifying as admitted assets;
(3) clean, irrevocable, unconditional and
“evergreen” letters of credit issued or confirmed by a qualified U.S.
institution, as defined in Paragraph (1) of Subsection E of Section 59A-12E-2
NMSA 1978, effective no later than December 31 of the year for which filing is
being made, and in the possession of, or in trust for, the ceding insurer on or
before the filing date of its annual statement. Letters of credit meeting
applicable standards of issuer acceptability as of the dates of their issuance
(or confirmation) shall, notwithstanding the issuing (or confirming)
institution’s subsequent failure to meet applicable standards of issuer
acceptability, continue to be acceptable as security until their expiration,
extension, renewal, modification or amendment, whichever first occurs; or
(4) any other form of security acceptable
to the superintendent.
B. An admitted asset or a reduction from liability for
reinsurance ceded to an unauthorized assuming insurer pursuant to this section
shall be allowed only when the requirements of 13.2.8.27 NMAC and the
applicable portions of 13.2.8.19 through 13.2.8.26 NMAC have been satisfied.
[13.2.8.18 NMAC – Rp,
13.2.8.14, 7/1/2022]
13.2.8.19 REQUIRED CONDITIONS FOR TRUST
AGREEMENTS QUALIFIED UNDER SECTION 18 OF 13.2.8 NMAC:
A. The trust agreement shall be entered into between the
beneficiary, the grantor and a trustee, which shall be a qualified U.S.
financial institution as defined in Paragraph (2) of
Subsection E of Section 59A-12E-2 NMSA 1978.
B. The trust agreement shall create a trust account into
which assets shall be deposited.
C. All assets in the trust account shall be held by the
trustee at the trustee’s office in the U.S.
D. The trust agreement shall provide that:
(1) the beneficiary shall have the right
to withdraw assets from the trust account at any time, without notice to the
grantor, subject only to written notice from the beneficiary to the trustee;
(2) no other statement or document is
required to be presented to withdraw assets, except that the beneficiary may be
required to acknowledge receipt of withdrawn assets;
(3) it is not subject to any conditions
or qualifications outside of the trust agreement; and
(4) it shall not contain references to
any other agreements or documents except as provided for in Subsections J and K
of this section.
E. The trust agreement shall be established for the sole
benefit of the beneficiary.
F. The trust agreement shall require the trustee to:
(1) receive assets and hold all assets in
a safe place;
(2) determine that all assets are in such
form that the beneficiary, or the trustee upon direction by the beneficiary,
may whenever necessary negotiate any such assets, without consent or signature
from the grantor or any other person or entity;
(3) furnish to the grantor and the
beneficiary a statement of all assets in the trust account upon its inception
and at intervals no less frequent than the end of each calendar quarter;
(4) notify the grantor and the
beneficiary within 10 days of any deposits to or withdrawals from the trust account;
(5) upon written demand of the
beneficiary, immediately take any and all steps
necessary to transfer absolutely and unequivocally all right, title and
interest in the assets held in the trust account to the beneficiary and deliver
physical custody of the assets to the beneficiary; and
(6) allow no substitutions or withdrawals
of assets from the trust account, except on written instructions from the
beneficiary, except that the trustee may, without the consent of but with
notice to the beneficiary, upon call or maturity of any trust asset, withdraw
such asset upon condition that the proceeds are paid into the trust account.
E. The trust agreement shall provide that at least 30 days,
but not more than 45 days, prior to termination of the trust account, written
notification of termination shall be delivered by the trustee to the
beneficiary.
F. The trust agreement shall be made subject to and governed
by the laws of the state in which the trust is domiciled.
G. The trust agreement shall prohibit invasion of the trust
corpus for the purpose of paying commission to, or reimbursing the expenses of,
the trustee. In order for a letter of credit to qualify as an asset of the
trust, the trustee shall have the right and the obligation pursuant to the deed
of trust or some other binding agreement (as duly approved by the
superintendent), to immediately draw down the full amount of the letter of
credit and hold the proceeds in trust for the beneficiaries of the trust if the
letter of credit will otherwise expire without being renewed or replaced.
H. The trust agreement shall provide that the trustee shall
be liable for its negligence, willful misconduct or lack of good faith. The
failure of the trustee to draw against the letter of credit in circumstances
where such draw would be required shall be deemed to be negligence or willful
misconduct.
I. Notwithstanding other provisions of this rule, when a
trust agreement is established in conjunction with a reinsurance agreement
covering risks other than life, annuities and accident and health, where it is
customary practice to provide a trust agreement for a specific purpose, the
trust agreement may provide that the ceding insurer shall undertake to use and
apply amounts drawn upon the trust account, without diminution because of the
insolvency of the ceding insurer or the assuming insurer, only for the
following purposes:
(1) to pay or reimburse the ceding insurer
for the assuming insurer’s share under the specific reinsurance agreement
regarding any losses and allocated loss expenses paid by the ceding insurer,
but not recovered from the assuming insurer, or for unearned premiums due to
the ceding insurer if not otherwise paid by the assuming insurer;
(2) to make payment to the assuming
insurer of any amounts held in the trust account that exceed 102 percent of the
actual amount required to fund the assuming insurer’s obligations under the
specific reinsurance agreement; or
(3) where the ceding insurer has received
notification of termination of the trust account and where the assuming
insurer’s entire obligations under the specific reinsurance agreement remain
unliquidated and undischarged 10 days prior to the termination date, to
withdraw amounts equal to the obligations and deposit those amounts in a
separate account, in the name of the ceding insurer in any qualified U.S.
financial institution as defined in Paragraph (2) of Subsection E of Section 59A-12E-2
NMSA 1978 apart from its general assets, in trust for such uses and purposes
specified in Paragraphs (1) and (2) above, as may remain executory after such
withdrawal and for any period after the termination date.
J. Notwithstanding other provisions of this rule, when a
trust agreement is established to meet the requirements of Section 18 in
conjunction with a reinsurance agreement covering life, annuities or accident
and health risks, where it is customary to provide a trust agreement for a
specific purpose, the trust agreement may provide that the ceding insurer shall
undertake to use and apply amounts drawn upon the trust account, without
diminution because of the insolvency of the ceding insurer or the assuming
insurer, only for the following purposes:
(1) To pay or reimburse the ceding
insurer for:
(a) the assuming insurer’s share under
the specific reinsurance agreement of premiums returned, but not yet recovered from the assuming insurer, to the owners of policies
reinsured under the reinsurance agreement on account of cancellations of the
policies; and
(b) the assuming insurer’s share under
the specific reinsurance agreement of surrenders and benefits or losses paid by
the ceding insurer, but not yet recovered from the assuming insurer, under the
terms and provisions of the policies reinsured under the reinsurance agreement;
(2) to pay to the assuming insurer
amounts held in the trust account in excess of the amount necessary to secure
the credit or reduction from liability for reinsurance taken by the ceding
insurer; or
(3) Where the ceding insurer has received
notification of termination of the trust and where the assuming insurer’s
entire obligations under the specific reinsurance agreement remain unliquidated
and undischarged ten (10) days prior to the termination date, to withdraw
amounts equal to the assuming insurer’s share of liabilities, to the extent
that the liabilities have not yet been funded by the assuming insurer, and
deposit those amounts in a separate account, in the name of the ceding insurer
in any qualified U.S. financial institution apart from its general assets, in
trust for the uses and purposes specified in Subparagraphs (a) and (b) of Paragraph
(1) above as may remain executory after withdrawal and for any period after the
termination date.
K. Either the reinsurance agreement or the trust agreement
shall stipulate that assets deposited in the trust account shall be valued
according to their current fair market value and shall consist only of cash in
U.S. dollars, certificates of deposit issued by a U.S. bank and payable in U.S.
dollars, and investments permitted by the Insurance Code or any combination of
the above, provided investments in or issued by an entity controlling,
controlled by or under common control with either the grantor or the
beneficiary of the trust shall not exceed five percent of total investments.
The agreement may further specify the types of investments to be deposited. If
the reinsurance agreement covers life, annuities or accident and health risks,
then the provisions required by this paragraph shall be included in the
reinsurance agreement.
[13.2.8.19 NMAC – Rp,
13.2.8.15, 7/1/2022]
13.2.8.20 PERMITTED CONDITIONS FOR TRUST
AGREEMENTS QUALIFIED UNDER SECTION 18 OF 13.2.8 NMAC:
A. The trust agreement may provide that the trustee may
resign upon delivery of a written notice of resignation, effective not less
than 90 days after the beneficiary and grantor receive the notice and that the
trustee may be removed by the grantor by delivery to the trustee and the
beneficiary of a written notice of removal, effective not less than 90 days
after the trustee and the beneficiary receive the notice, provided that no such
resignation or removal shall be effective until a successor trustee has been
duly appointed and approved by the beneficiary and the grantor and all assets
in the trust have been duly transferred to the new trustee.
B. The grantor may have the full and unqualified right to
vote any shares of stock in the trust account and to receive from time-to-time
payments of any dividends or interest upon any shares of stock or obligations
included in the trust account. Any interest or dividends shall be either
forwarded promptly upon receipt to the grantor or deposited in a separate account
established in the grantor’s name.
C. The trustee may be given authority to invest, and accept
substitutions of, any funds in the account, provided that no investment or
substitution shall be made without prior approval of the beneficiary, unless
the trust agreement specifies categories of investments acceptable to the
beneficiary and authorizes the trustee to invest funds and to accept
substitutions that the trustee determines are at least equal in current fair
market value to the assets withdrawn and that are consistent with the
restrictions in Paragraph (2) of Subsection A of 13.2.8.21 NMAC.
D. The trust agreement may provide that the beneficiary may
at any time designate a party to which all or part of the trust assets are to
be transferred. Transfer may be conditioned upon the trustee receiving, prior
to or simultaneously, other specified assets.
E. The trust agreement may provide that, upon termination of
the trust account, all assets not previously withdrawn by the beneficiary
shall, with written approval by the beneficiary, be delivered over to the
grantor.
[13.2.8.20 NMAC – Rp,
13.2.8.16, 7/1/2022]
13.2.8.21 ADDITIONAL CONDITIONS APPLICABLE
TO REINSURANCE AGREEMENTS FOR TRUST AGREEMENTS QUALIFIED UNDER SECTION 18 OF
13.2.8 NMAC:
A. A reinsurance agreement may contain provisions that:
(1) require the assuming insurer to enter
into a trust agreement and to establish a trust account for the benefit of the
ceding insurer, and specifying what the agreement is to cover;
(2) require the assuming insurer, prior
to depositing assets with the trustee, to execute assignments or endorsements
in blank, or to transfer legal title to the trustee of all shares, obligations
or any other assets requiring assignments, in order that the ceding insurer, or
the trustee upon the direction of the ceding insurer, may whenever necessary negotiate these assets without consent or
signature from the assuming insurer or any other entity;
(3) require that all settlements of
account between the ceding insurer and the assuming insurer be made in cash or
its equivalent; and
(4) stipulate that the assuming insurer
and the ceding insurer agree that the assets in the trust account, established
pursuant to the provisions of the reinsurance agreement, may be withdrawn by
the ceding insurer at any time, notwithstanding any other provisions in the
reinsurance agreement, and shall be utilized and applied by the ceding insurer
or its successors in interest by operation of law, including without limitation
any liquidator, rehabilitator, receiver or conservator of such company, without
diminution because of insolvency on the part of the ceding insurer or the
assuming insurer, only for the following purposes:
(a) to pay or reimburse the ceding
insurer for:
(i) the
assuming insurer’s share under the specific reinsurance agreement of premiums
returned, but not yet recovered from the assuming insurer,
to the owners of policies reinsured under the reinsurance agreement because of
cancellations of such policies;
(ii) the assuming insurer’s share of
surrenders and benefits or losses paid by the ceding insurer pursuant to the
provisions of the policies reinsured under the reinsurance agreement; and
(iii) any other amounts necessary to secure
the credit or reduction from liability for reinsurance taken by the ceding insurer;
(b) to make payment to the assuming
insurer of amounts held in the trust account in excess of the amount necessary
to secure the credit or reduction from liability for reinsurance taken by the
ceding insurer.
B. The reinsurance agreement also may contain provisions
that:
(1) give the assuming insurer the right
to seek approval from the ceding insurer, which shall not be unreasonably or
arbitrarily withheld, to withdraw from the trust account all or any part of the
trust assets and transfer those assets to the assuming insurer, provided:
(a) the assuming insurer shall, at the
time of withdrawal, replace the withdrawn assets with other qualified assets
having a current fair market value equal to the market value of the assets
withdrawn so as to maintain at all times the deposit
in the required amount; or
(b) after withdrawal and transfer, the
current fair market value of the trust account is no less than one hundred-two percent of the required amount.
(2) provide for the return of any amount
withdrawn in excess of the actual amounts required for Paragraph 4 of
Subsection A of this section, and for interest payments at a rate not in excess
of the prime rate of interest on such amounts;
(3) permit the award by any arbitration
panel or court of competent jurisdiction of:
(a) interest at a rate different from
that provided in Paragraph (2) of this subsection;
(b) court or arbitration costs;
(c) attorney’s fees; and
(d) any other reasonable expenses.
[13.2.8.21 NMAC – Rp,
13.2.8.17, 7/1/2022]
13.2.8.22 FINANCIAL REPORTING APPLICABLE TO
REINSURANCE AGREEMENTS FOR TRUST AGREEMENTS QUALIFIED UNDER SECTION 18 OF
13.28.8 NMAC:
A trust agreement
may be used to reduce any liability for reinsurance ceded to an unauthorized
assuming insurer in financial statements required to be filed with this
department in compliance with the provisions of this rule when established on
or before the date of filing of the financial statement of the ceding insurer.
Further, the reduction for the existence of an acceptable trust account may be
up to the current fair market value of acceptable assets available to be
withdrawn from the trust account at that time, but such reduction shall be no
greater than the specific obligations under the reinsurance agreement that the
trust account was established to secure.
[13.2.8.22 NMAC – Rp,
13.2.8.19, 7/1/2022]
13.2.8.23 FAILURE TO IDENTIFY BENEFICIARY
APPLICABLE TO REINSURANCE AGREEMENTS FOR TRUST AGREEMENTS QUALIFIED UNDER
SECTION 18 OF 13.2.8 NMAC: The failure of any trust agreement
to specifically identify the beneficiary as defined in Paragraph B of 13.2.8.7
NMAC shall not be construed to affect any actions or rights that the
superintendent may take or possess pursuant to the provisions of the laws of
this state.
[13.2.8.23 NMAC – Rp,
13.2.8.21, 7/11/2022]
13.2.8.24 LETTERS OF CREDIT APPLICABLE TO
REINSURANCE AGREEMENTS FOR TRUST AGREEMENTS QUALIFIED UNDER SECTION 18 OF
13.2.8 NMAC:
A. The letter of credit shall be clean, irrevocable,
unconditional and issued or confirmed by a qualified U.S. financial institution
as defined in Paragraph (1) of Subsection E of Section 59A-12E-2 NMSA 1978. The
letter of credit shall contain an issue date and expiration date and shall
stipulate that the beneficiary need only draw a sight draft under the letter of
credit and present it to obtain funds and that no other document need be
presented. The letter of credit also shall indicate that it is not subject to
any condition or qualifications outside of the letter of credit. In addition,
the letter of credit itself shall not contain reference to any other
agreements, documents or entities, except as provided in Subsection A of
13.2.8.27 NMAC.
B. The heading of the letter of credit may include a boxed
section containing the name of the applicant and other appropriate notations to
provide a reference for the letter of credit. The boxed section shall be
clearly marked to indicate that such information is for internal identification
purposes only.
C. The letter of credit shall contain a statement to the
effect that the obligation of the qualified U.S. financial institution under
the letter of credit is in no way contingent upon reimbursement with respect
thereto.
D. The term of the letter of credit shall be for at least
one year and shall contain an “evergreen clause” that prevents the expiration
of the letter of credit without due notice from the issuer. The “evergreen
clause” shall provide for a period of no less than 30 days’ notice prior to
expiration date or nonrenewal.
E. The letter of credit shall state whether it is subject to
and governed by the laws of this state or the Uniform Customs and Practice for
Documentary Credits of the International Chamber of Commerce Publication 600
(UCP 600) or International Standby Practices of the International Chamber of
Commerce Publication 590 (ISP98), or any successor publication, and all drafts
drawn thereunder shall be presentable at an office in the U.S. of a qualified
U.S. financial institution.
F. If the letter of credit is made subject to the Uniform
Customs and Practice for Documentary Credits of the International Chamber of
Commerce Publication 600 (UCP 600) or International Standby Practices of the
International Chamber of Commerce Publication 590 (ISP98), or any successor
publication, then the letter of credit shall specifically address and provide
for an extension of time to draw against the letter of credit in the event that
one or more of the occurrences specified in Article 36 of Publication 600 or
any other successor publication, occur.
G. If the letter of credit is issued by a financial
institution authorized to issue letters of credit, other than a qualified U.S.
financial institution as described in Subsection A of this section, then the
following additional requirements shall be met:
(1) the issuing financial institution
shall formally designate the confirming qualified U.S. financial institution as
its agent for the receipt and payment of the drafts; and
(2) the “evergreen clause” shall provide
for 30 days’ notice prior to expiration date for nonrenewal.
[13.2.8.24 NMAC – Rp,
13.2.8.22, 7/1/2022]
13.2.8.25 REINSURANCE AGREEMENT PROVISIONS
FOR LETTERS OF CREDIT QUALIFIED UNDER SECTION 18 OF 13.2.8 NMAC:
A. The reinsurance agreement in conjunction with which the
letter of credit is obtained may contain provisions that:
(1) require the assuming insurer to
provide letters of credit to the ceding insurer and specify what they are to cover;
(2) stipulate that the assuming insurer
and ceding insurer agree that the letter of credit provided by the assuming
insurer pursuant to the provisions of the reinsurance agreement may be drawn
upon at any time, notwithstanding any other provisions in the agreement, and
shall be utilized by the ceding insurer or its successors in interest only for
one or more of the following reasons:
(a) to pay or reimburse the ceding
insurer for:
(i) the
assuming insurer’s share under the specific reinsurance agreement of premiums
returned, but not yet recovered from the assuming insurers,
to the owners of policies reinsured under the reinsurance agreement on account
of cancellations of such policies;
(ii) the assuming insurer’s share, under
the specific reinsurance agreement, of surrenders and benefits or losses paid
by the ceding insurer, but not yet recovered from the assuming insurers, under
the terms and provisions of the policies reinsured under the reinsurance
agreement; and
(b) any other amounts necessary to secure
the credit or reduction from liability for reinsurance taken by the ceding
insurer.
(3) All of the provisions of this subsection
shall be applied without diminution because of insolvency on the part of the
ceding insurer or assuming insurer.
B. Where the letter of credit will expire without renewal or
be reduced or replaced by a letter of credit for a reduced amount and where the
assuming insurer’s entire obligations under the reinsurance agreement remain
unliquidated and undischarged 10 days prior to the termination date, to
withdraw amounts equal to the assuming insurer’s share of the liabilities, to
the extent that the liabilities have not yet been funded by the assuming
insurer and exceed the amount of any reduced or replacement letter of credit,
and deposit those amounts in a separate account in the name of the ceding
insurer in a qualified U.S. financial institution apart from its general
assets, in trust for such uses and purposes specified in Subparagraph (a) of
Paragraph (2) of Subsection A of 13.2.8.25 NMAC as may remain after withdrawal
and for any period after the termination date.
C. Nothing contained in Subsection A of this section shall
preclude the ceding insurer and assuming insurer from providing for:
(1) an interest payment, at a rate not in
excess of the prime rate of interest, on the amounts held pursuant to Paragraph
(2) of Subsection A of this section; or
(2) the return of any amounts drawn down
on the letters of credit in excess of the actual amounts required for the above
or any amounts that are subsequently determined not to be due.
[13.2.8.25 NMAC – Rp,
13.2.8.23, 7/1/2022]
13.2.8.26 OTHER SECURITY: A ceding insurer
may take credit for unencumbered funds withheld by the ceding insurer in the
U.S. subject to withdrawal solely by the ceding insurer and under its exclusive
control.
[13.2.8.26 NMAC – Rp,
13.2.8.24, 7/1/2022]
13.2.8.27 REINSURANCE CONTRACT: Credit will not
be granted, nor an asset or reduction from liability allowed, to a ceding
insurer for reinsurance effected with assuming insurers meeting the
requirements of Sections (8) through (16), or Section (18) of this rule or
otherwise in compliance with Sections 59A-12E-3 through 59A-12E-15 NMSA 1978
after the adoption of this rule unless the reinsurance agreement:
A. includes a proper insolvency clause, which stipulates
that reinsurance is payable directly to the liquidator or successor without
diminution regardless of the status of the ceding company, pursuant to Chapter
59A, Article 41 of the Insurance Code.
B. includes a provision pursuant to Sections 59A-12E-3
through 59A-12E-15 NMSA 1978 whereby the assuming insurer, if an unauthorized
assuming insurer, has submitted to the jurisdiction of an alternative dispute
resolution panel or court of competent jurisdiction within the U.S., has agreed
to comply with all requirements necessary to give the court or panel
jurisdiction, has designated an agent upon whom service of process may be
effected, and has agreed to abide by the final decision of the court or panel;
and
C. Includes a proper reinsurance intermediary clause, if
applicable, which stipulates that the credit risk for the intermediary is
carried by the assuming insurer.
[13.2.8.27 NMAC – Rp,
13.2.8.25, 7/1/2022]
13.2.8.28 SEVERABILITY: If any provision
of this rule, or the application of the provision to any person or
circumstance, is held invalid, the remainder of the rule, and the application
of the provision to persons or circumstances other than those to which it is
held invalid, shall not be affected.
[13.2.8.28 NMAC - Rp,
13.2.8.27, 7/1/2022]
History of 13.2.8 NMAC:
13.2.8 NMAC - Credit For Reinsurance, filed 7/1/1997; Recompiled 11/30/2001 was
repealed and replaced by 13.2.8 NMAC - Credit For Reinsurance, effective
7/24/2018.
13.2.8 NMAC – Credit for Reinsurance, filed 7/24/2018 was repealed and
replaced by 13.2.8 NMAC – Credit for Reinsurance, effective 7/1/2022.