The Office of General Counsel issued the following opinion on June 11, 2003, representing the position of the New York State Insurance Department.
Re: Credit for Reinsurance Involving Property/Casualty Risks
May an authorized, domestic property/casualty insurer take credit for reinsurance ceded to an alien assuming insurer, which is not entered as a United States branch, where such assuming insurer meets the requirements of the foreign regulatory body in which it writes its business?
An authorized, domestic property/casualty insurer may take credit for reinsurance ceded to an alien assuming insurer, which is not entered as a United States branch, only pursuant to N.Y. Ins. Law § 1301(a)(14) (McKinney 2000) and N.Y. Comp. Codes R. & Regs. tit. 11, §§ 125.4 (Regulations 17, 20, 20-A) and 126.5 (Regulation 114).
An authorized, domestic property/casualty insurer with offices located around the world, including Canada and Australia, cedes insurance to an alien assuming insurer (also referred to herein as a "reinsurer") that is not licensed or accredited anywhere in the United States.
N.Y. Ins. Law § 1301(a)(14) (McKinney 2000) states in relevant part:
(a) In determining the financial condition of a domestic or foreign insurer or the United States branch of an alien insurer for the purposes of this chapter, there may be allowed as admitted assets of such insurer, unless otherwise specifically provided in this chapter, only the following assets owned by such insurer:
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(14) Reinsurance recoverable by a ceding insurer: . . . (iii) from an insurer not so authorized or accredited . . . in an amount not exceeding the liabilities carried by the ceding insurer for amounts withheld 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. Notwithstanding any other provision of this chapter, the superintendent may by regulation prescribe the conditions under which a ceding insurer may be allowed credit, as an asset or as a deduction from loss and unearned premium reserves, for reinsurance recoverable from . . . an insurer not authorized in this state[.]
N.Y. Comp. Codes R. & Regs. tit. 11, § 125.4(c)(1) (Regulations 17, 20, and 20-a) states:
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:
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In the case of an alien assuming insurer, not otherwise entered as a United States branch in another state, such assuming insurer meets the standards of solvency required of license insurers of like character, such terms and conditions as prescribed by the superintendent, and otherwise complies substantially with related requirements, and such assuming insurer has deposited and continues to maintain in one or more New York state banks and/or members of the Federal Reserve System located in New York state, a trust fund or trust funds, constituting a trusteed surplus, in cash, readily marketable securities, or letters of credit, in an amount of not less than $ 20,000,000 for the protection of the United States insurers, and United States beneficiaries under reinsurance policies (contracts) issued by such alien assuming insurers. Such trusteed amount shall be in addition to any other trust fund required by this department, including, but not limited to, a trusteed amount at least equal to the liabilities attributable to United States insurers and United States beneficiaries under reinsurance policies (contracts) issued by such alien assuming insurers. As used in this subdivision, surplus means the balance remaining after subtracting the liabilities, attributable to reinsurance policies (contracts) issued in the name of such alien assuming insurer from the total assets deposited in the trust fund or trust funds.
For reinsurance ceded to an unauthorized insurer, which is not an accredited reinsurer, the ceding insurer may only take admitted asset credit for amounts withheld subject to withdrawal by, and under control of, the ceding insurer. N.Y. Comp. Codes R. & Regs. tit. 11, §§ 126.1 126.8 (Regulation 114) establishes the conditions that must be met regarding the trust agreement between an insurer and reinsurer.
For further details regarding this matter, we suggest a thorough reading of N.Y. Comp. Codes R. & Regs. tit. 11, Parts 125 (Regulations 17, 20, and 20-A) and 126 (Regulation 114). See also N.Y. Comp. Codes R. & Regs. tit. 11, Part 127 (Regulation 102) regarding an authorized property/casualty insurers accident and health insurance policies.
For further information you may contact Associate Attorney Sally Geisel at the New York City Office.