Senate Bill Report SB 5048
- Issuer
- Congressional materials
- Document type
- Report
- Date
- 2021-01-12
- Case
- 2021 01 12 A28147 D224143 Bill Report 5048 Sba Bfst 21
Summary
A Senate Bill Report on SB 5048, an act relating to reinsurance agreements, prepared as of January 8, 2021 by staff of the Senate Committee on Business, Financial Services & Trade, with committee activity listed for 1/12/21. The bill is sponsored by Senator Mullet at the request of the Insurance Commissioner. The background explains credit for reinsurance, the National Association of Insurance Commissioners, the Covered Agreements and possible federal preemption effective September 1, 2022. The summary of the bill describes requirements for reinsurers located and licensed in reciprocal jurisdictions, lists the Office of the Insurance Commissioner must keep, and rulemaking conditions such as a reinsurer holding at least $250 million in capital and surplus. The report lists no appropriation and no fiscal note requested.
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Full text
SENATE BILL REPORT
SB 5048
As of January 8, 2021
Title: An act relating to reinsurance agreements.
Brief Description: Concerning reinsurance agreements.
Sponsors: Senator Mullet; by request of Insurance Commissioner.
Brief History:
Committee Activity: Business, Financial Services & Trade: 1/12/21.
Brief Summary of Bill
• Establishes certain requirements for qualifying reinsurers located and
licensed in reciprocal jurisdictions.
SENATE COMMITTEE ON BUSINESS, FINANCIAL SERVICES & TRADE
Staff: Kellee Gunn (786-7429)
Background: Credit for Reinsurance. Reinsurance is an insurance product purchased by
an insurance company to pass some of the risk assumed by the insurance company to the
reinsurer. The insurer that transfers the risk to the reinsurer is the ceding company. The
reinsurer, the assuming company, accepts the risk. The ceding insurance company's
exposure to financial loss is thereby reduced. Credit for reinsurance is an accounting
procedure that permits a ceding company to treat amounts due from reinsurers as assets or
reductions from liability. This improves the reported financial condition of the ceding
insurance company in its annual statement. Credit for reinsurance is allowed only when
specified standards are met. In 2015, the Legislature passed the National Association for
Insurance Commissioner's Credit for Reinsurance Model Law.
National Association of Insurance Commissioners. The National Association of Insurance
Commissioners (NAIC) is an association composed of elected and appointed insurance
This analysis was prepared by non-partisan legislative staff for the use of legislative
members in their deliberations. This analysis is not part of the legislation nor does it
constitute a statement of legislative intent.
Senate Bill Report -1- SB 5048
regulators from the states and territories of the United States. The Office of the Insurance
Commissioner (OIC) is a member of NAIC.
Dodd-Frank Wall Street Reform and Consumer Protection Act, the Covered Agreements,
and Federal Preemption. The Dodd-Frank Wall Street Reform and Consumer Protection
Act of 2011 allowed for bilateral agreements between the European Union and the United
States—the Covered Agreements—regarding qualifying reinsurers. The Covered
Agreements ensure that no reinsurance collateral obligations be applied to qualifying
reinsurers. Effective September 1, 2022, the federal government may preempt any
inconsistent state law that treats a qualified non-United States reinsurer under the Covered
Agreements less favorably than a United States insurer licensed in the state.
In 2019, NAIC adopted amendments to their Credit for Reinsurance Model Law—the 2019
Amendments to the Credit for Reinsurance Models—that reflect the Covered Agreements.
States that do not adopt the 2019 Amendments to the Credit for Reinsurance Models will
lose NAIC accreditation and have their state laws regarding reinsurance preempted by the
federal government.
Summary of Bill: This bill establishes certain requirements on assuming
insurers—reinsurers—located and licensed in a reciprocal jurisdiction, as brought forward
by NAIC as amendments to the Credit for Reinsurance Model Law.
A reciprocal jurisdiction is one that is:
• located outside the United States and is subject to an in-force agreement with the
United States;
• located within a United States jurisdiction that meets requirements for accreditation
by NAIC's financial standards and accreditation program; or
• from a qualified jurisdiction, as currently set forth in statute and determined by the
OIC.
In addition to being located and licensed in a reciprocal location, other requirements are
established including, but not limited to, sharing certain financial information with the OIC
pertinent to the reinsurance agreement.
The OIC must create a list of reciprocal jurisdictions which includes those listed by NAIC.
The OIC must also list reinsurers that have satisfied the required conditions and to which
cessions shall be granted credit. A jurisdiction may be removed by the OIC if they no
longer meet the necessary requirements. Upon removal, the credit for reinsurance ceded to
a reinsurer shall be allowed if otherwise allowed in state law.
Credit for reinsurance is allowed only for reinsurance agreements entered into, amended, or
renewed on or after the effective date of this act, and only if the losses have occurred within
a certain time period on or after the reinsurer met all their obligations. Losses must have
been incurred, and reserves reported, when either the reinsurer met all eligibility
Senate Bill Report -2- SB 5048
requirements or the effective date of the new reinsurance agreement, whichever is later.
The OIC may adopt rules applicable to reinsurance agreements relating to certain life and
health insurance and annuity products where the NAIC adopts model regulatory
requirements regarding credit for reinsurance. A rule may apply to life and universal life
reinsurance policies contained in treaties issued on or after January 1, 2015. Rules
regarding those same reinsurance agreements may not be applicable to cessions to a
reinsurer under certain conditions. Those conditions include whether they are located and
licensed in a reciprocal jurisdiction and the Covered Agreements apply, are otherwise
allowed to be a reinsurer under state law, or whether the reinsurer:
• maintains at least $250 million in capital and surplus in accordance with NAIC's
accounting practices and procedures manual; and
• is licensed in at least 26 states or licensed and accredited in a total of at least 35 states
and maintains licensure in at least 10 states.
Rules adopted by the OIC may require a ceding insurer, when calculating the amounts or
forms of security required, to use the valuation model adopted by NAIC. The authority to
adopt rules regarding reinsurers is not limited otherwise by the OIC's general authority to
adopt rules.
Appropriation: None.
Fiscal Note: Not requested.
Creates Committee/Commission/Task Force that includes Legislative members: No.
Effective Date: Ninety days after adjournment of session in which bill is passed.
Senate Bill Report -3- SB 5048
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- Original
- app.leg.wa.gov