AN ACT RELATING TO INSURANCE -- CREDIT FOR REINSURANCE ACT
Amends reinsurance credit statute to conform with NAIC model/surplus lines statute for taxation of fees/protected cell statute as to business transfer with insolvency protection/insurance premium tax statute defining qualifying jobs.
2017-04-25: Introduced, referred to Senate Commerce
2017-04-28: Scheduled for hearing and/or consideration (05/02/2017)
2017-05-02: Committee recommended measure be held for further study
2017-06-16: Scheduled for consideration (06/20/2017)
2017-06-20: Committee recommends passage of Sub A
2017-06-20: Placed on Senate Calendar (06/22/2017)
2017-06-22: Senate passed Sub A
2017-06-23: Referred to House Corporations
2017-06-24: Scheduled for hearing and/or consideration (06/27/2017)
2017-06-27: Committee recommended measure be held for further study
2017-06-28: Scheduled for consideration (06/28/2017)
2017-06-28: Committee recommends passage of Sub A in concurrence
2017-06-29: Placed on the House Consent Calendar
2017-06-30: Placed on the House Consent Calendar
2017-06-30: Placed on the House Consent Calendar (06/30/2017)
2017-09-15: Placed on the House Consent Calendar (09/19/2017)
2017-09-19: House passed Sub A in concurrence
2017-10-03: Transmitted to Governor
2017-10-05: Signed by Governor
Changes since original draft
2017 – S 0783
S TATE OF RHODE IS L AND
IN GENERAL ASSEMBLY
JANUARY SESSION, A.D. 2017
A N A C T
RELATING TO INSURANCE – CREDIT FOR REINSURANCE ACT
Introduced By: Senator Roger Picard
Date Introduced: April 25, 2017
Referred To: Senate Commerce
(Dept. of Business Regulation)
It is enacted by the GeneralAssembly as follows:
SECTION 1. Sections 27-1.1-1, 27-1.1-2 and 27-1.1-4 of the General Laws in Chapter 27-1.1 entitled "Credit for Reinsurance Act"are hereby amended to read as follows:
27-1.1-1. Credit allowed a domestic ceding insurer.
(a) Credit for reinsurance shall be allowed a domestic ceding insurer as either an asset or a reduction from liability on account of reinsurance ceded only when the reinsurer meets the requirements of subsections (b), (c), (d), (e), (f) or (g) of this section; provided, further, that the commissioner may adopt by regulation pursuant to §27-1.1-4 specific additional requirements relating to or setting forth:
(1) The valuation of assets or reserve credits;
(2) The amount and forms of security supporting reinsurance arrangements described in §27-1.1-4; and
(3) The circumstances pursuant to which credit will be reduced or eliminated.
Credit shall be allowed under subsections (b), (c) or (d) of this section only as respects cessions of those kinds or classes of business which the assuming insurer is licensed or otherwise permitted to write or assume in its state of domicile or, in the case of a U.S. branch of an alien assuming insurer, in the state through which it is entered and licensed to transact insurance or reinsurance. Credit shall be allowed under subsections (d) or (e) of this section only if the applicable requirements of subsection (h) have been satisfied.
(b) Credit shall be allowed when the reinsurance is ceded to an assuming insurer that is licensed to transact insurance or reinsurance in this state.
(c) Credit shall be allowed when the reinsurance is ceded to an assuming insurer that is accredited by the commissioner as a reinsurer in this state. In order to be eligible for an accreditation a reinsurer must:
(1) File with the commissioner evidence of its submission to this state's jurisdiction;
(2) Submit to this state's authority to examine its books and records;
(3) Be licensed to transactinsurance or reinsurance in atleast one state,or in the case of a United States branch of an alien assuming insurer be entered through and licensed to transact insurance or reinsurance in at least one state;
(4) Annually file with the commissioner a copy of its annual statement filed with the insurance department of its state of domicile and a copy of its most recent audited financial statement, and:
(5) Demonstrate to the satisfaction of the commissioner that it has adequate financial capacity to meet its reinsurance obligations and is otherwise qualified to assume reinsurance from domestic insurers. An assuming insurer is deemed to meet this requirement as of the time of its application if it maintains a surplus as regards policyholders in an amount not less than twenty million dollars ($20,000,000), and its accreditation has not been denied by the commissioner within ninety (90) days after submission of its application.
(d) (1) Credit shall be allowed when the reinsurance is ceded to an assuming insurer that is domiciled in, or in the case of a United States branch of an alien assuming insurer is entered through, a state that employs standards regarding credit for reinsurance substantially similar to those applicable under this statute, and the assuming insurer or U.S. branch of an alien assuming insurer:
(i) Maintains a surplus regarding policyholders in an amount not less than twenty million dollars ($20,000,000); and
(ii) Submits to the authority of this state to examine its books and records;
(2) Provided, that the requirement of subsection (d)(1)(i) does not apply to reinsurance ceded and assumed pursuant to pooling arrangements among insurers in the same holding company system.
(e) (1) Credit shall be allowed when the reinsurance is ceded to an assuming insurer that maintains a trust fund in a qualified United States financial institution, as defined in section 27- 1.1-3(b), for the payment of the valid claims of its United States ceding insurers their assigns and successors in interest. To enable the commissioner to determine the sufficiency of the trust fund, the assuming insurer shall report annually to the commissioner information substantially the same
LC002180 - Page 2of 19 as that required to be reported on the National Association of Insurance Commissioners annual statement form by licensed insurers. The assuming insurer shall submit to examination of its books and records by the commissioner, and bear the expense of examination.
(2) (i) Credit for reinsurance shall not be granted under this subsection unless the form of the trust and any amendments to the trust have been approved by:
(A) The commissioner of the state where the trust is domiciled; or
(B) The commissioner of another state who, pursuant to the terms of the trust instrument, has accepted principalregulatory oversight of the trust.
(ii) The form of the trust and any trust amendments shall also be filed with the commissioner of every state in which the ceding insurer beneficiaries of the trust are domiciled. The trust instrument shall provide that contested claims shall be valid and enforceable upon the final order of any court of competent jurisdiction in the United States. The trust shall vest legal title to its assets in its trustees for the benefit of the assuming insurer's U.S. ceding insurers, their assigns and successors in interest. The trust and the assuming insurer shall be subject to examination as determined by the commissioner.
(iii) The trust shall remain in effect for as long as the assuming insurer has outstanding obligations due under the reinsurance agreements subject to the trust. No later than February 28 of each year the trustee of the trust shall report to the commissioner in writing the balance of 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 willnot expire prior to the following December 31.
(3) The following requirements apply to the following categories of assuming insurer:
(i) The trust fund for a single assuming insurer shallconsist of funds in trust in an amount not less than the assuming insurer's liabilities attributable to reinsurance ceded by U.S. ceding insurers, and, in addition, the assuming insurer shall maintain a trusteed surplus of not less than twenty million dollars ($20,000,000), except as provided in paragraph (3)(ii) below.
(ii) At any time after the assuming insurer has permanently discontinued underwriting new business secured by the trust for at least three (3) fullyears, the commissioner 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
LC002180 - Page 3of 19 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 (30%) of the assuming insurer's liabilities attributable to reinsurance ceded by U.S. ceding insurers covered by the trust.
(iii) (A) In the case of a group including incorporated and individual unincorporated underwriters:
(B) For reinsurance ceded under reinsurance agreements with an inception, amendment or renewal date on or after January 1, 1993, the trust shall consist of a trusteed account 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;
(C) For reinsurance ceded under reinsurance agreements with an inception date on or before December 31, 1992, and not amended or renewed after that date, not-withstanding the other provisions of this chapter, the trust shall consist of a trusteed account in an amount not less than the respective underwriters' several insurance and reinsurance liabilities attributable to business written in the United States;
(D) In addition to these trusts, the group shall maintain in trust a trusteed surplus of which one hundred million dollars ($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 years of account; and
(E) 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 regulation and solvency control by the group's domiciliary regulator as are the unincorporated members.
(I)(F) Within ninety (90) days after its financial statements are due to be filed with the group's domiciliary regulator, the group shall provide to the commissioner an annual certification by the group's domiciliary regulator of the solvency of each underwriter member; or if a certification is unavailable, financial statements, prepared by independent public accountants, of each underwriter member of the group.
(iv) In the case of a group of incorporated underwriters under common administration the group shall
(A) Have continuously transacted an insurance business outside the United States for at least three (3) years immediately prior to making application for accreditation,
(B) Maintain an aggregate policyholders surplus of ten billion dollars ($10,000,000,000).
(C) Maintain a trust fund in an amount not less than the group's several liabilities attributable to business ceded by United States domiciled ceding insurers to any member of the group pursuant to reinsurance contracts issued in the name of the group.
LC002180 - Page 4of 19
(D) In addition, maintain a joint trusted surplus of which one hundred million dollars ($100,000,000) shall be held jointly for the benefit of U.S. domiciled ceding insurers of any member of the group as additional security for these liabilities, and
(E) Within ninety (90) days after its financial statements are due to be filed with the group's domiciliary regulator, make available to the commissioner an annual certification of each underwriter member's solvency by the member's domiciliary regulator, and financial statements of each underwriter member of the group prepared by its independent public accountant;
(f) Credit shall be allowed when the reinsurance is ceded to an assuming insurer that has been certified by the commissioner as a reinsurer in this state and secures its obligations in accordance with the requirements of this subsection.
(1) In order to be eligible for certification, the assuming insurer shall meet the following requirements:
(i) The assuming insurer must be domiciled and licensed to transact insurance or reinsurance in a qualified jurisdiction, as determined by the commissioner pursuant to paragraph (f)(iii) of this subsection;
(ii) The assuming insurer must maintain minimum capital and surplus, or its equivalent, in an amount to be determined by the commissioner pursuant to regulation;
(iii) The assuming insurer must maintain financial strength ratings from two or more rating agencies deemed acceptable by the commissioner pursuant to regulation;
(iv) The assuming insurer must agree to submit to the jurisdiction of this state, appoint the commissioner as its agent for service of process in this state, and agree to provide security for one hundred percent (100%) of the assuming insurer's liabilities attributable to reinsurance ceded by U.S. ceding insurers if it resists enforcement of a finalU.S. judgment;
(v) The assuming insurer must agree to meet applicable information filing requirements as determined by the commissioner, both with respect to an initialapplication for certification and on an ongoing basis; and
(vi) The assuming insurer must satisfy any other requirements for certification deemed relevant by the commissioner.
(2) An association including incorporated and individual unincorporated underwriters may be a certified reinsurer. In order to be eligible for certification, in addition to satisfying requirements of paragraph (i) above:
(i) The association shall satisfy its minimum capital and surplus requirements through the capital and surplus equivalents (net of liabilities) of the association and its members, which shall include a joint central fund that may be applied to any unsatisfied obligation of the association or
LC002180 - Page 5of 19 any of its members, in an amount determined by the commissioner to provide adequate protection;
(ii) The incorporated members of the association shall not be engaged in any business other than underwriting as a member of the association and shall be subject to the same level of regulation and solvency control by the association's domiciliary regulator as are the unincorporated members; and
(iii) Within ninety (90) days after its financial statements are due to be filed with the association's domiciliary regulator, the association shall provide to the commissioner an annual certification by the association's domiciliary regulator of the solvency of each underwriter member; or if a certification is unavailable, financial statements, prepared by independent public accountants, of each underwriter member of the association.
(3) The commissioner shall create and publish a list of qualified jurisdictions, under which an assuming insurer licensed and domiciled in such jurisdiction is eligible to be considered for certification by the commissioner as a certified reinsurer.
(i) 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 commissioner shall evaluate the appropriateness and effectiveness of the reinsurance supervisory system of the 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. A qualified jurisdiction must agree to share information and cooperate with the commissioner with respect to all certified reinsurers domiciled within that jurisdiction. A jurisdiction may not be recognized as a qualified jurisdiction if the commissioner has determined that the jurisdiction does not adequately and promptly enforce final U.S. judgments and arbitration awards. Additional factors may be considered in the discretion of the commissioner.
(ii) A list of qualified jurisdictions shall be published through the NAIC committee process. The commissioner shall consider this list in determining qualified jurisdictions. If the commissioner approves a jurisdiction as qualified that does not appear on the list of qualified jurisdictions, the commissioner shall provide thoroughly documented justification in accordance with criteria to be developed under regulations.
(iii) U.S. jurisdictions that meet the requirement for accreditation under the NAIC financial standards and accreditation program shall be recognized as qualified jurisdictions.
(iv) If a certified reinsurer's domiciliary jurisdiction ceases to be a qualified jurisdiction, the commissioner has the discretion to suspend the reinsurer's certification indefinitely, in lieu of revocation.
LC002180 - Page 6of 19
(4) The commissioner shall assign a rating to each certified reinsurer, giving due consideration to the financial strength ratings that have been assigned by rating agencies deemed acceptable to the commissioner pursuant to regulation. The commissioner shall publish a list of all certified reinsurers and their ratings.
(5) A certified reinsurer shallsecure obligations assumed from U.S. ceding insurers under this subsection at a level consistent with its rating, as specified in regulations promulgated by the commissioner.
(i) In order for a domestic ceding insurer to qualify for full financial statement credit for reinsurance ceded to a certified reinsurer, the certified reinsurer shall maintain security in a form acceptable to the commissioner and consistent with the provisions of section 3, or in a multi- beneficiary trust in accordance with subsection (e) of this section, except as otherwise provided in this subsection.
(ii) If a certified reinsurer maintains a trust to fully secure its obligations subject to subsection (e) of this section, and chooses to secure its obligations incurred as a certified reinsurer in the form of a multi-beneficiary trust, the certified reinsurer shall maintain separate trust accounts for its obligations incurred under reinsurance agreements issued or renewed as a certified reinsurer with reduced security as permitted by this subsection or comparable laws of other U.S. jurisdictions and for its obligations subject to subsection (e) of this section. It shallbe a condition to the grant of certification under subsection (f) of this section that the certified reinsurer shall have bound itself, by the language of the trust and agreement with the commissioner with principal regulatory oversight of each such trust account, to fund, upon termination of any such trust account, out of the remaining surplus of such trust any deficiency of any other such trust account.
(iii) The minimum trusteed surplus requirements provided in subsection D are not applicable with respect to a multi-beneficiary trust maintained by a certified reinsurer for the purpose of securing obligations incurred under this subsection, except that such trust shall maintain a minimum trusteed surplus of ten million dollars ($10,000,000).
(iv) With respect to obligations incurred by a certified reinsurer under this subsection, if the security is insufficient, the commissioner shall reduce the allowable credit by an amount proportionate to the deficiency, and has the discretion to impose further reductions in allowable credit upon finding that there is a material risk that the certified reinsurer's obligations willnot be paid in full when due.
(v) For purposes of this subsection, a certified reinsurer whose certification has been terminated for any reason shall be treated as a certified reinsurer required to secure one hundred
LC002180 - Page 7of 19 percent (100%) of its obligations.
(A) As used in this subsection, the term "terminated" refers to revocation, suspension, voluntary surrender and inactive status.
(B) If the commissioner continues to assign a higher rating as permitted by other provisions of this section, this requirement does not apply to a certified reinsurer in inactive status or to a reinsurer whose certification has been suspended.
(6) If an applicant for certification has beencertified as a reinsurer in anNAIC accredited jurisdiction, the commissioner has the discretion to defer to that jurisdiction's certification, and has the discretion to defer to the rating assigned by that jurisdiction, and such assuming insurer shall be considered to be a certified reinsurer in this state.
(7) A certified reinsurer that ceases to assume new business in this state may request to maintain its certification in inactive status in order to continue to qualify for a reduction in security for its in-force business. An inactive certified reinsurer shall continue to comply with all applicable requirements of this subsection, and the commissioner shall assign a rating that takes into account, if relevant, the reasons why the reinsurer is not assuming new business.
(g) Credit shall be allowed when the reinsurance is ceded to an assuming insurer not meeting the requirements of subsections (b), (c), (d) (e) or (f) of this section, but only as to the insurance of risks located in jurisdictions where the reinsurance is required by applicable law or regulation of that jurisdiction.
(h) If the assuming insurer is not licensed, accredited or certified to transact insurance or reinsurance in this state, the credit permitted by subsections (d) and (e) of this section shallnot be allowed unless the assuming insurer agrees in the reinsurance agreements:
(1) (i) That in the event of the failure of the assuming insurer to perform its obligations under the terms of the reinsurance agreement, the assuming insurer, at the request of the ceding insurer, shall submit to the jurisdiction of any court of competent jurisdiction in any state of the United States, will comply with all requirements necessary to give the court jurisdiction, and will abide by the final decision of the court or of any appellate court in the event of an appeal; and
(ii) To designate the commissioner or a designated attorney as its true and lawfulattorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the ceding insurer.
(2) This subsection is not intended to conflict with or override the obligation of the parties to a reinsurance agreement to arbitrate their disputes, if this obligation is created in the agreement.
(i) If the assuming insurer does not meet the requirements of subsections (b), (c) or (d),
LC002180 - Page 8of 19 the credit permitted by subsection (e) or (f) of this section shall not be allowed unless the assuming insurer agrees in the trust agreements to the following conditions:
(1) 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 subsection (e)(iii) of this section, 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 commissioner with regulatory oversight over the trust or with an order of a court of competent jurisdiction directing the trustee to transfer to the commissioner with regulatory oversight all of the assets of the trust fund.
(2) The assets shall be distributed by and claims shall be filed with and valued by the commissioner with regulatory oversight in accordance with the laws of the state in which the trust is domiciled that are applicable to the liquidation of domestic insurance companies.
(3) If the commissioner with regulatory oversight determines that the assets of the trust fund or any part thereof are not necessary to satisfy the claims of the U.S. ceding insurers of the grantor of the trust, the assets or part thereof shall be returned by the commissioner with regulatory oversight to the trustee for distribution in accordance with the trust agreement.
(4) The grantor shall waive any right otherwise available to it under U.S. law that is inconsistent with this provision.
(j) If an accredited or certified reinsurer ceases to meet the requirements for accreditation or certification, the commissioner may suspend or revoke the reinsurer's accreditation or certification.
(1) The commissioner must give the reinsurer notice and opportunity for hearing. The suspension or revocation may not take effect until after the commissioner's order on hearing, unless:
(i) The reinsurer waives its right to hearing;
(ii) The commissioner's order is based on regulatory action by the reinsurer's domiciliary jurisdiction or the voluntary surrender or termination of the reinsurer's eligibility to transact insurance or reinsurance business in its domiciliary jurisdiction or in the primary certifying state of the reinsurer under subparagraph (f)(vi) of this section; or
(iii) The commissioner finds that an emergency requires immediate action and a court of competent jurisdiction has not stayed the commissioner's action.
(A) While a reinsurer's accreditation or certification is suspended, no reinsurance contract issued or renewed after the effective date of the suspension qualifies for credit except to the extent that the reinsurer's obligations under the contract are secured in accordance with Section 3.
LC002180 - Page 9of 19 If a reinsurer's accreditation or certification is revoked, no credit for reinsurance may be granted after the effective date of the revocation except to the extent that the reinsurer's obligations under the contract are secured in accordance with subsection (f)(v) or section 3.
(k) Concentration Risk.
(1) A ceding insurer shalltake steps to manage its reinsurance recoverables proportionate to its own book of business. A domestic ceding insurer shall notify the commissioner within thirty (30) days after reinsurance recoverables from any single assuming insurer, or group of affiliated assuming insurers, exceeds fifty percent (50%) of the domestic ceding insurer's last reported surplus to policyholders, or after it is determined that reinsurance recoverables from any single assuming insurer, or group of affiliated assuming insurers, is likely to exceed this limit. The notification shall demonstrate that the exposure is safely managed by the domestic ceding insurer.
(2) A ceding insurer shall take steps to diversify its reinsurance program. A domestic ceding insurer shall notify the commissioner within thirty (30) days after ceding to any single assuming insurer, or group of affiliated assuming insurers, more than twenty percent (20%) of the ceding insurer's gross written premium in the prior calendar year, or after it has determined that the reinsurance ceded to any single assuming insurer, or group of affiliated assuming insurers, is likely to exceed this limit. The notification shall demonstrate that the exposure is safely managed by the domestic ceding insurer.
27-1.1-2. Asset or reduction from liability for reinsurance ceded by a domestic insurer to an assuming insurer not meeting the requirements of 27-1.1-1.
An asset or a reduction from liability for the reinsurance ceded by a domestic insurer to an assuming insurer not meeting the requirements of § 27-1.1-1 shallbe allowed in an amount not exceeding the liabilities carried by the ceding insurer; provided, further, that the commissioner may adopt by regulation pursuant to §27-1.1-4 specific additional requirements relating to or setting forth:
(1) The valuation of assets or reserve credits;
(2) The amount and forms of security supporting reinsurance arrangements described in §27-1.1-4; and
(3) The circumstances pursuant to which credit will be reduced or eliminated. 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 ceding insurer, under a reinsurance contract with the assuming insurer as security for the payment of obligations thereunder, if the security is held in the United States 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 United States financial institution as defined in § 27-1.1-3(b). This security may be in the form of:
(2) Securities listed by the securities valuation office of the National Association of Insurance Commissioners, including those deemed exempt from filing as defined by the Purposes and Procedures Manualof the Securities Valuation Office, and qualifying as admitted assets;
(3) (i) Clean, irrevocable, unconditional letters of credit, issued or confirmed by a qualified United States financial institution as defined in § 27-1.1-3(a), no later than December 31st of the year for which the filing is being made, and in the possession of, or in trust for, the ceding insurer on or before the filing date of its annualstatement.
(ii) 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 commissioner.
27-1.1-4. Rules and regulations.
(a) The commissioner may adopt reasonable rules and regulations implementing the provisions of this law.
(b) The commissioner is further authorized to adopt rules and regulations applicable to reinsurance arrangements described in this section.
(1) A regulation adopted pursuant to this section may apply only to reinsurance relating to:
(i) Life insurance policies with guaranteed nonlevel gross premiums or guaranteed nonlevel benefits;
(ii) Universal life insurance policies with provisions resulting in the ability of a policyholder to keep a policy in force over a secondary guarantee period;
(iii) Variable annuities with guaranteed death or living benefits;
(iv) Long-term insurance care policies; or
(v) Other life and health insurance and annuity products as to which the NAIC adopts model regulatory requirements with respect to credit for reinsurance.
(2) A regulation adopted pursuant to subsection (b)(1)(i) or (b)(1)(ii) of this section, may apply to any treaty containing:
(i) Policies issued on or after January 1, 2015; and
(ii) Policies issued prior to January 1, 2015, if risk pertaining to the pre-2015 policies is ceded in connection with the treaty, in whole or in part, on or after January 1, 2015.
SECTION 2. Section 27-3-38 of the General Laws in Chapter 27-3 entitled "Surplus Lines Insurance"is hereby amended to read as follows:
27-3-38. Surplus line brokers – License– Affidavit of inability to obtain insurance - - Reports and records – Premium tax – Notice to purchasers.
(a) The insurance commissioner may issue a surplus line broker's license to any person authorizing the licensee to procure, subject to the restrictions provided in this section, policies of insurance, except life and health and accident, from eligible surplus lines insurers. Residents of this state must hold a property and casualty insurance producer license to qualify for a surplus lines broker license. This license may be denied, suspended, or revoked by the insurance commissioner whenever, in the commissioner's judgment, any of the bases under § 27-2.4-14 exist. Before any license is issued by the insurance commissioner and before each renewal of a license, there shall be filed in his or her office a written application by the person desiring the license in the form, and containing any information, that the insurance commissioner may prescribe. For the purposes of carrying out the provisions of the Nonadmitted and Reinsurance Reform Act of 2010, the commissioner is authorized to utilize the national insurance producer database of the National Association of Insurance Commissioners (NAIC), or any other equivalent uniform national database, for the licensure of a person as a surplus lines producer and for renewalof such license. For insureds whose home state is this state, a person shallnot procure a contract of surplus lines insurance with a nonadmitted insurer unless the person possesses a current surplus lines insurance license issued by the commissioner.
(b) A Rhode Island resident business entity acting as a surplus line broker may elect to obtain a surplus line broker license. Application shall be made using the uniform business entity application. Prior to approving the application, the commissioner shall find both of the following:
(1) The business entity has paid the appropriate fees.
(2) The business entity has designated a licensed surplus line broker responsible for the business entity's compliance with the insurance laws and rules of this state.
(c) When any policy of insurance is procured under the authority of that license, there shall be executed, both by the licensee and by the insured, affidavits setting forth facts showing that the insured, or a licensed Rhode Island producer, were unable, after diligent effort, to procure from no less than three (3) admitted insurers the full amount of insurance required to protect the property owned or controlled by the insured or the risks insured. Provided, however, the aforementioned affidavit shall not be required when insuring the following interest: amusement parks and devices, environmental improvement and/or remediation sites, vacant property or property under renovation, demolition operations, event cancellation due to weather, railroad liability, discontinued products, fireworks and pyrotechnics, warehouseman's legal liability, excess property coverage, private flood, and contingent liability. In addition, no such affidavit is required for exempt commercial purchasers as defined by the Nonadmitted and Reinsurance Reform Act of 2010. For purposes of this section, residual market mechanisms shall not be considered authorized insurers. Prior to renewing, continuing, or extending any policy, the licensed surplus line broker must confirm that the insurer is on the insurance commissioner's list of approval surplus line insurers in this state.
(d) The licensee shall keep a complete and separate record of all policies procured from approved surplus lines insurers under the license and these records shall be open to the examination of both the insurance commissioner and tax administrator at allreasonable times and shall show the exact amount of each kind of insurance permitted under this section which has been procured for each insured; the gross premiums and fees charged by the insurers or brokers for each kind of insurance permitted under this section which were returned to each insured; the name of the insurer or insurers which issued each of these policies; the effective dates of these policies; and the terms for which these policies were issued. The licensee shallfile a yearly report with the insurance commissioner on a form prescribed by the insurance commissioner showing the business procured under the surplus line license for the preceding calendar year, and the report shall be due annually on or before April 1.
(e) Every person, firm, or corporation licensed pursuant to the provisions of this section shall file with the insurance commissioner, at the time of the insurance producer license renewal, sufficient information, as determined by the insurance commissioner, whether a licensee or a person acting on the licensee's behalf, has paid to the tax administrator, for all policies procured by the licensee pursuant to the license during the next preceding calendar year, a tax, computed at the rate of four percent (4%) on the gross premiums and fees charged the insured by the insurers or brokers, less the amount of premiums returned to the insured.
(f) Every application form for insurance from a surplus lines insurer, every affidavit form executed by the insured, and every policy (on its front and declaration pages) issued by the surplus lines insurer, shall contain in ten-point (10) type the following notice:
THIS INSURANCE CONTRACT HAS BEEN PLACED WITH AN INSURER NOT LICENSED TO DO BUSINESS IN THE STATE OF RHODE ISLAND BUT APPROVED AS A SURPLUS LINES INSURER. THE INSURER IS NOT A MEMBER OF THE RHODE ISLAND INSURERS INSOLVENCY FUND. SHOULD THE INSURER BECOME INSOLVENT, THE PROTECTION AND BENEFITS OF THE RHODE ISLAND INSURERS INSOLVENCY FUND ARE NOT AVAILABLE.
SECTION 3. Section 27-64-6 of the General Laws in Chapter 27-64 entitled "The Protected CellCompanies Act"is hereby amended to read as follows:
27-64-6. Reach of creditors and other claimants.
(a) (1) Protected cell assets shall only be available to the creditors of the protected cell company that are creditors in respect to that protected cell and shall be entitled, in conformity with the provisions of this chapter, to have recourse to the protected cellassets attributable to that protected cell, and shall be absolutely protected from the creditors of the protected cellcompany that are not creditors in respect of that protected celland, who accordingly, shallnot be entitled to have recourse to the protected cellassets attributable to that protected cell. Creditors with respect to a protected cell shall not be entitled to have recourse against the protected cellassets of other protected cells or the assets of the protected cellcompany's generalaccount.
(2) Protected cell assets shall only be available to creditors of a protected cell company after all protected cell liabilities have been extinguished or provided for in accordance with the plan of operation relating to that protected cell.
(b) When an obligation of a protected cellcompany to a person arises from a transaction, or is imposed, in respect of a protected cell:(1) that obligation of the protected cellcompany shall extend only to the protected cell assets attributable to that protected cell, and the person shall, with respect to that obligation, be entitled to have recourse only to the protected cell assets attributable to that protected cell, and (2) that obligation of the company shall not extend to the protected cell assets of any other protected cell or the assets of the protected cell company's general account, and that person shall not, with respect to that obligation, be entitled to have recourse to the protected cell assets of any other protected cellor the assets of the protected cell company's generalaccount.
(c) When an obligation of a protected cell company relates solely to the generalaccount, the obligation of the protected cell company shall extend only to, and that creditor shall, with respect to that obligation, be entitled to have recourse only to the assets of the protected cell company's generalaccount.
(d) Other than with regard to the application of §27-64-6, the The activities, assets, and obligations relating to a protected cell are not subject to the provisions of chapters 34, 34.1 and 34.3 of this title and neither a protected cell nor a protected cellcompany shallbe assessed by or be required to contribute to any guaranty fund or guaranty association in this state with respect to the activities, assets or obligations of a protected cell. Nothing in this section shall affect the activities or obligations of an insurer's generalaccount.
(e) In no event shall the establishment of one or more protected cells alone constitute or be deemed to be a fraudulent conveyance, an intent by the protected cell company to defraud creditors or the carrying out of business by the protected cell company for any other fraudulent purpose.
SECTION 4. Section 44-17-1 of the GeneralLaws in Chapter 44-17 entitled "Taxation of Insurance Companies" is hereby amended to read as follows:
44-17-1. Companies required to file – Payment of tax – Retaliatory rates.
(a) Every domestic, foreign, or alien insurance company, mutual association, organization, or other insurer, including any health maintenance organization as defined in § 27- 41-2, any medical malpractice insurance joint underwriters association as defined in § 42-14.1-1, any nonprofit dental service corporation as defined in § 27-20.1-2 and any nonprofit hospital or medical service corporation as defined in chapters 19 and 20 of title 27, except companies mentioned in § 44-17-6 and organizations defined in § 27-25-1, transacting business in this state, shall, on or before April 15 in each year, file with the tax administrator, in the form that he or she may prescribe, a return under oath or affirmation signed by a duly authorized officer or agent of the company, containing information that may be deemed necessary for the determination of the tax imposed by this chapter, and shall at the same time pay an annualtax to the tax administrator of two percent (2%) of the gross premiums on contracts of insurance, except for ocean marine insurance as referred to in § 44-17-6, covering property and risks within the state, written during the calendar year ending December 31st next preceding.
(b) Qualifying insurers for purposes of this subsection means every domestic, foreign, or alien insurance company, mutual association, organization, or other insurer and excludes:
(1) Health maintenance organizations, as defined in § 27-41-2;
(2) Nonprofit dental service corporations, as defined in § 27-20.1-2; and
(3) Nonprofit hospital or medical service corporations, as defined in §§ 27-19-1 and 27- 20-1.
(c) For tax years 2018 and thereafter, the rate of taxation may be reduced as set forth below and, if so reduced, shall be fully applicable to qualifying insurers instead of the two percent (2%) rate listed in subsection (a). In the case of foreign or alien companies, except as provided in § 27-2-17(d), the tax shall not be less in amount than is imposed by the laws of the state or country under which the companies are organized upon like companies incorporated in this state or upon its agents, if doing business to the same extent in the state or country. The tax rate shall not be reduced for gross premiums written on contracts of health insurance as defined in § 42-14- 5(c) but shall remain at two percent (2%) or the appropriate retaliatory tax rate, whichever is higher.
(d) For qualifying insurers, the premium tax rate may be decreased based upon Rhode Island jobs added by the industry as detailed below:
(1) A committee shall be established for the purpose of implementing tax rates using the framework established herein. The committee shallbe comprised of the following persons or their designees: the secretary of commerce, the director of the department of business regulation, the director of the department of revenue, and the director of the office of management and budget. No rule may be issued pursuant to this section without the prior, unanimous approval of the committee.
(2) On the timetable listed below, the committee shall determine whether qualifying insurers have added new qualifying jobs in this state in the preceding calendar year. A qualifying job for purposes of this section is one in which a person is employed for consideration for at least thirty-five (35) hours a week earning no less than the median hourly wage as reported by the United States Bureau of Labor Statistics for the state of Rhode Island any employee with total annual wages equal to or greater than forty percent (40%) of the average annual wages of the Rhode Island insurance industry as published by the annual employment and wages report of the Rhode Island department of labor and training in NAICS code 5241.
(3) If the committee determines that there has been a sufficient net increase in qualifying jobs in the preceding calendar year(s) to offset a material reduction in the premium tax, it shall calculate a reduced premium tax rate. Such rate shallbe determined via a method selected by the committee and designed such that the estimated personalincome tax generated by the increase in qualifying jobs is at least one hundred and twenty-five percent (125%) of the anticipated reduction in premium tax receipts resulting from the new rate. For purposes of this calculation, the committee may consider personal income tax withholdings or receipts, but in no event may the committee include for the purposes of determining revenue neutrality income taxes that are subject to segregation pursuant to § 44-48.3-8(f) or that are otherwise available to the general fund.
(4) Any reduced rate established pursuant to this section must be established in a rulemaking proceeding pursuant to chapter 35 of title 42, subject to the following conditions:
(i) Any net increase in qualifying jobs and the resultant premium tax reduction and revenue impact shall be determined in any rulemaking proceeding conducted under this section and shall be set forth in a report included in the rulemaking record, which report shallalso include a description of the data sources and calculation methods used. The first such report shall also include a calculation of the baseline level of employment of qualifying insurers for the calendar year 2015.
(ii) Notwithstanding any provision of the law to the contrary, no rule changing the tax rate shall take effect until one hundred and twenty (120) days after notice of the rate change is provided to the speaker of the house, the president of the senate, the house and senate fiscal advisors, and the auditor general, which notice shall include the report required under the preceding provision.
(5) For each of the first three (3) rulemaking proceedings required under this section, the tax rate may remain unchanged or be decreased consistent with the requirements of this section, but may not be increased. These first three (3) rulemaking proceedings shallbe conducted by the division of taxation and occur in the following manner:
(i) The first rulemaking proceeding shall take place in calendar year 2017. This proceeding shall establish a rule that sets forth:(A) A new premium tax rate, if allowed under the requirements of this section, which rate shall take effect in 2018, and (B) A method for calculating the number of jobs at qualifying insurers.
(ii) The second rulemaking proceeding shall take place in calendar year 2018. This proceeding shall establish a rule that sets forth:(A) A new premium tax rate, if allowed under the requirements of this section, which rate shall take effect in 2019, and (B) The changes, if any, to the method for calculating the number of jobs at qualifying insurers.
(iii) The third rulemaking proceeding shall take place in calendar year 2019. This proceeding shall establish a rule that sets forth:(A) A new premium tax rate, if allowed under the requirements of this section, which rate shall take effect in 2020, and (B) The changes, if any, to the method for calculating the number of jobs at qualifying insurers.
(6) The tax rate established in the regulation following regulatory proceedings that take place in 2019 shall remain in effect through and including 2023. In calendar year 2023, the department of business regulation will conduct a rulemaking proceeding and issue a rule that sets forth: (A) A new premium tax rate, if allowed under the requirements of this section, which rate shall take effect in 2024, and (B) The changes, if any, to the method for calculating the number of jobs at qualifying insurers. A rule issued by the department of business regulation may decrease the tax rate if the requirements for a rate reduction contained in this section are met, or it may increase the tax rate to the extent necessary to achieve the overallrevenue levelsought when the then-existing tax rate was established. Any rate established shall be no lower than one percent (1%) and no higher than two percent (2%). This proceeding shall be repeated every three (3) calendar years thereafter, however, the base for determination of job increases or decreases shall remain the number of jobs existing during calendar year 2022.
(7) No reduction in the premium tax rate pursuant to this section shallbe allowed absent a determination that qualifying insurers have added in this state at least three hundred fifty (350) new, full-time, qualifying jobs above the baseline level of employment of qualifying insurers for the calendar year 2015.
(8) Notwithstanding any provision of this section to the contrary, the premium tax rate shall never be set lower than one percent (1%).
(9) The division of taxation may adopt implementation guidelines, directives, criteria, rules and regulations pursuant to chapter 35 of title 42 as are necessary to implement this section.
(10) The calculation of revenue impacts under this section is at the sole discretion of the committee established under subsection (d)(1). Notwithstanding any provision of law to the contrary, any administrative action or rule setting a tax rate pursuant to this section or failing or declining to alter a tax rate pursuant to this section shall not be subject to judicial review under chapter 35 of title 42.
SECTION 5. This act shalltake effect upon passage.
BY THE LEGISLATIVE COUNCIL
A N A C T
RELATING TO INSURANCE – CREDIT FOR REINSURANCE ACT
This act would amend: (1) The provisions of the general laws relating to credit for reinsurance to make the laws consistent with the most recent National Association of Insurance Commissioners (NAIC) model; (2) The surplus lines laws to provide for taxation of fees incurred by licensed insurers; (3) The protected cell legislation to address transfer of business with insolvency protection; and (4) The definition of qualifying jobs in the insurance premium tax law.
This act would take effect upon passage. ======== LC002180 ========
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