New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

The Office of General Counsel issued the following informal opinion on July 31, 2002, representing the position of the New York State Insurance Department.

Re: Unauthorized Accident and Health Reinsurer Assuming Statutory Workers’ Compensation Risks

Question Presented:

How may an authorized property/casualty insurer, underwriting statutory workers’ compensation insurance in New York, elect to take credit for reinsurance recoverable from an unauthorized accident and health reinsurer, domiciled in the United States and authorized in its domiciliary jurisdiction to assume a portion of the losses of certain, specified segments of statutory workers’ compensation insurance underwritten by primary property/casualty insurers, if the reinsurer is not accredited by the New York State Insurance Department and does not post a letter of credit or other security?

Conclusion:

An authorized property/casualty insurer may take credit for reinsurance recoverable from such unauthorized reinsurer if the parties fulfill all of the requirements of either: (1) § 125.4(f) of N.Y. Comp. Codes R. & Regs. tit. 11, § 125 (2001) (Regulations 17, 20 and 20-A) - most notably, the requirement that the property/casualty insurer establish an unauthorized reinsurance reserve; or (2) § 125.4(g) of N.Y. Comp. Codes R. & Regs. tit. 11, § 125 (2001) (Regulations 17, 20 and 20-A) - most notably, the requirement that the property/casualty insurer have a noninsurer parent corporation that will provide the property/casualty insurer with funds that are held subject to withdrawal by, and under the control of, such insurer.

Facts:

An unauthorized accident and health reinsurer (the "Reinsurer"), domiciled in the United States and authorized in its domiciliary jurisdiction to assume a portion of the losses of certain, specified segments of statutory workers’ compensation insurance underwritten by primary property/casualty insurers, intends to reinsure, without the accreditation1 of the New York State Insurance Department and without posting a letter of credit or other security, statutory workers’ compensation insurance in New York for an authorized property/casualty insurer (the "Insurer") underwriting such risks. The Reinsurer maintains an A++ rating from Standard and Poor’s and assets in excess of eleven billion dollars ($11,000,000,000.00).

Analysis:

1. N.Y. Comp. Codes R. & Regs. tit. 11, § 125.4(f)-(g) (2001) provide in pertinent part:

A ceding insurer may elect to take credit, as an asset or as a deduction from loss and unearned premium reserves, for reinsurance recoverable, involving risks other than life, annuity and accident and health, from an assuming insurer not authorized in this State, provided:

. . . .

(f) With respect to reinsurance contracts entered into or renewed on or after September 15, 2001, in the case of cessions to nonaffiliated assuming insurers who have not complied with the requirements of subdivision (a), (c) or (d) of this section, but are authorized in their domiciliary jurisdiction to assume the kind or kinds of insurance ceded thereto:

(1) The ceding insurer shall establish an unauthorized reinsurance reserve which shall be a percentage of all reinsurance recoverable, including unearned premiums, from such assuming insurers described in this subdivision, after reducing such recoverable for any acceptable funds withheld under a reinsurance agreement with such an insurer as security for the payment of obligations thereunder, pursuant to the provisions of section 1301(a)(14) of the Insurance Law, which percentage shall be equal to the greater of:

(i) the largest percentage of all uncollectible unauthorized reinsurance recoverables during any one of the last five full calendar years, as measured by dividing the amount of reinsurance recoverables due and payable to the ceding insurer for that calendar year from the unauthorized assuming insurers, over 90 days past due and not in dispute, by the amount of reinsurance recoverables due and payable to the ceding insurer plus amounts actually collected by the ceding insurer for that same calendar year from unauthorized assuming insurers;

(ii) the largest percentage of unearned premiums in any one unauthorized insurer to the total unearned premiums on cessions to all unauthorized insurers; or

(iii) 15 percent.

. . . .

(g) In the case of cessions to nonaffiliated assuming insurers who have not complied with the requirements of subdivision (a), (c) or (d) of this section, but who are authorized in their domiciliary jurisdiction to assume the kind or kinds of insurance ceded thereto:

(1) The noninsurer parent corporation of the ceding insurer provides the ceding insurer with funds, in lieu of the funds to be withheld by the ceding insurer under a reinsurance treaty with such unauthorized insurer as security for the payment of obligations thereunder, if such funds are held subject to withdrawal by, and under the control of, the ceding insurer. This transaction, including the type, amount and form of such funds, shall require the prior approval of the superintendent and shall be subject to the laws of the state of New York unless waived by the superintendent for good cause shown.

N.Y. Comp. Codes R. & Regs. tit. 11, § 125.4(f)-(g) (2001) (Regulations 17, 20 and 20-A).2

Accordingly, under the facts presented, the Insurer may take credit for reinsurance recoverable from the Reinsurer for risks of statutory workers’ compensation insurance if all the requirements of either § 125.4(f) or § 125.4(g) of N.Y. Comp. Codes R. & Regs. tit. 11, § 125 (2001) (Regulations 17, 20 and 20-A) are satisfied.

The Property Bureau of the New York State Insurance Department handles all inquiries regarding specific surplus requirements and solvency standards for statutory workers’ compensation reinsurers. It can be contacted at (212) 480-5299.

The above opinion is informal and not binding on any court. For further information you may contact Attorney Kristian Earl Lynch at the New York City Office.


1 Please note that N.Y. Comp. Codes R. & Regs. tit. 11, § 125.4(a) (2001) does not grant Insurer the right to take credit for reinsurance because the Reinsurer is not accredited by the New York State Insurance Department.

2 Only the core provisions of § 125.4(f) and § 125.4(g) are provided. Please see N.Y. Comp. Codes R. & Regs. tit. 11, § 125.4 (2001) for all further requirements.