SB0150

SENATE BILL 150

55th legislature - STATE OF NEW MEXICO - second session, 2022

INTRODUCED BY

Elizabeth "Liz” Stefanics and Mark Moores and

Dayan Hochman-Vigil

AN ACT

RELATING TO INSURANCE; ENACTING THE CREDIT FOR REINSURANCE ACT; PROVIDING FOR CREDIT TO INSURERS OBTAINING REINSURANCE; REPEALING AND ENACTING SECTIONS OF THE NMSA 1978; DECLARING AN EMERGENCY.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF NEW MEXICO:

SECTION 1. [NEW MATERIAL] SHORT TITLE.--This act may be cited as the "Credit for Reinsurance Act".

SECTION 2. [NEW MATERIAL] DEFINITIONS.--As used in the Credit for Reinsurance Act:

A. "accredited jurisdiction" means a jurisdiction that meets the accreditation standards established by the national association of insurance commissioners;

B. "alien assuming insurer" means an assuming insurer that is formed according to the laws of a foreign country;

C. "assuming insurer" means an insurer assuming risk from another insurer;

D. "ceding insurer" means an insurer that transfers risk by purchasing reinsurance;

E. "qualified United States financial institution" means an institution that:

(1) for purposes of Paragraphs (3) and (4) of Subsection B of Section 16 of the Credit for Reinsurance Act:

(a) is organized, or in the case of a United States office of a foreign banking organization, licensed pursuant to laws of the United States or any state thereof;

(b) is regulated, supervised and examined by federal or state authorities having regulatory authority over banks and trust companies; and

(c) has been determined by either the superintendent or the securities valuation office of the national association of insurance commissioners to meet such standards of financial condition and standing as are considered necessary and appropriate to regulate the quality of financial institutions whose letters of credit will be acceptable to the superintendent; or

(2) for purposes of those provisions of the Credit for Reinsurance Act specifying those institutions that are eligible to act as a fiduciary of a trust:

(a) is organized, or in the case of a United States branch or agency office of a foreign banking organization, licensed, pursuant to the laws of the United States or any state thereof and has been granted authority to operate with fiduciary powers; and

(b) is regulated, supervised and examined by federal or state authorities having regulatory authority over banks and trust companies;

F. "reciprocal jurisdiction" means a jurisdiction that meets one of the following descriptions:

(1) a non-United-States jurisdiction that is subject to an in-force covered agreement with the United States, each within its legal authority, or, in the case of a covered agreement between the United States and the European Union, is a member state of the European Union. For purposes of this paragraph, a "covered agreement" is an agreement entered into pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act 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 United States jurisdiction that meets the requirements for accreditation pursuant to the national association of insurance commissioners financial standards and accreditation program; or

(3) a qualified jurisdiction, as determined by the superintendent pursuant to Section 8 and Subsection A of Section 9 of the Credit for Reinsurance Act, which is not otherwise described in Paragraph (1) or (2) of Subsection F of Section 2 of the Credit for Reinsurance Act and which meets certain additional requirements, consistent with the terms and conditions of in-force covered agreements, as specified by the superintendent in rule; and

G. "superintendent" means the superintendent of insurance.

SECTION 3. [NEW MATERIAL] 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 the Credit for Reinsurance Act. The superintendent shall adopt and promulgate rules for:

(1) specific additional requirements relating to or setting forth the valuation of assets or reserve credits;

(2) the amount and forms of security supporting reinsurance arrangements described in Section 17 of the Credit for Reinsurance Act; and

(3) the circumstances pursuant to which credit shall be reduced or eliminated.

B. Credit for reinsurance shall be allowed a domestic ceding insurer pursuant to this section only for cessions of those kinds or classes of business for which the assuming insurer is licensed or otherwise permitted to write or assume in its state of domicile or, in the case of a United States branch of an alien assuming insurer, in the state through which it is entered and licensed to transact insurance or reinsurance.

C. Credit for reinsurance shall be allowed a domestic ceding insurer pursuant to this section only if the applicable requirements of Subsection F of Section 13 of the Credit for Reinsurance Act have been satisfied.

D. Credit for reinsurance shall be allowed a domestic ceding insurer when the reinsurance is ceded to an assuming insurer:

(1) that is licensed to transact insurance or reinsurance in this state or is accredited by the superintendent as a reinsurer in this state; or

(2) 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 pursuant to the Credit for Reinsurance Act and the assuming insurer or United States branch of an alien assuming insurer maintains a surplus as regards policyholders in an amount not less than twenty million dollars ($20,000,000) and submits to the authority of the superintendent to examine its books and records; provided that the requirements of this paragraph shall not apply to reinsurance ceded and assumed pursuant to pooling arrangements among insurers within a single holding company system; and

(3) that maintains a trust fund in a qualified United States financial institution as defined in Paragraph (2) of Subsection E of Section 2 of the Credit for Reinsurance Act for the payment of the valid claims of its United States ceding insurers, their assigns and successors in interest; provided that to enable the superintendent to determine the sufficiency of the trust fund, the assuming insurer shall report annually to the superintendent information substantially the same as that required to be reported on the national association of insurance commissioners annual statement form by licensed insurers; and further provided that the assuming insurer shall submit to examination of its books and records by the superintendent and bear the expense of examination.

E. Credit for reinsurance shall not be allowed pursuant to Paragraph (3) of Subsection D of Section 3 of the Credit for Reinsurance Act unless the form of the trust pursuant to Subsection D of this section and any amendments to the trust have been approved by:

(1) the regulator of insurance of the state where the trust is domiciled; or

(2) the regulator of insurance of another state that, pursuant to the terms of the trust instrument, has accepted principal regulatory oversight of the trust.

SECTION 4. [NEW MATERIAL] TRUSTS--TRUST AMENDMENTS.--

A. The form of the trust pursuant to Subsection D of Section 3 of the Credit for Reinsurance Act and any trust amendments shall be filed with the regulator of insurance of every state in which the ceding insurer beneficiaries of the trust are domiciled.

B. The trust instrument shall:

(1) provide that contested claims shall be valid and enforceable upon the final order of any court of competent jurisdiction in the United States; and

(2) vest legal title to its assets in its trustees for the benefit of the assuming insurer's United States ceding insurers, their assigns and successors in interest.

C. The trust and the assuming insurer shall be subject to examination as determined by the superintendent.

D. The trust shall remain in effect for as long as the assuming insurer has outstanding obligations due pursuant to the reinsurance agreements subject to the trust.

E. No later than February 28 of each year, the trustee of the trust shall report to the superintendent in writing the balance of the trust and a list of the trust's investments at the preceding year's end and shall certify the date of termination of the trust, if so planned, or certify that the trust will not expire prior to the following December 31.

SECTION 5. [NEW MATERIAL] ACCREDITATION OF REINSURERS.-- Credit shall be allowed when the reinsurance is ceded to an assuming insurer that is accredited by the superintendent as a reinsurer in this state. To be eligible for accreditation, a reinsurer shall:

A. file with the superintendent evidence of its submission to the state's jurisdiction;

B. submit to the superintendent's authority to examine its books and records;

C. be licensed to transact insurance or reinsurance in at least 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;

D. file annually with the superintendent 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

E. demonstrate to the satisfaction of the superintendent that it has adequate financial capacity to meet its reinsurance obligations and is otherwise qualified to assume reinsurance from domestic insurers, provided that 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 superintendent within ninety days after submission of its application.

SECTION 6. [NEW MATERIAL] TRUST REQUIREMENTS.--

A. 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 United States 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 Subsection B of this section.

B. At any time after the assuming insurer has permanently discontinued underwriting new business secured by the trust for at least three full years, the government agency 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 United States 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 shall not be reduced to an amount less than thirty percent of the assuming insurer's liabilities attributable to reinsurance ceded by United States ceding insurers covered by the trust.

C. In the case of a group including incorporated and individual unincorporated underwriters:

(1) for reinsurance ceded pursuant to 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 United-States-domiciled ceding insurers to any underwriter of the group;

(2) for reinsurance ceded pursuant to 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 the Credit for Reinsurance Act, 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;

(3) in addition to the trusts provided for in Paragraphs (1) and (2) of this subsection, 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 United-States-domiciled ceding insurers of any member of the group for all 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 regulation and solvency control by the group's domiciliary regulator as are the unincorporated members; and

(5) within ninety days after its financial statements are due to be filed with the group's domiciliary regulator, the group shall provide to the superintendent 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.

D. In the case of a group of incorporated underwriters under common administration, the group shall:

(1) have continuously transacted an insurance business outside the United States for at least three years immediately prior to making application for accreditation;

(2) maintain aggregate policyholders' surplus of at least ten billion dollars ($10,000,000,000);

(3) 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;

(4) maintain a joint trusteed surplus of which one hundred million dollars ($100,000,000) shall be held jointly for the benefit of United-States-domiciled ceding insurers of any member of the group as additional security for these liabilities; and

(5) within ninety days after its financial statements are due to be filed with the group's domiciliary regulator, make available to the superintendent 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.

SECTION 7. [NEW MATERIAL] CERTIFIED REINSURERS--QUALIFICATIONS.--

A. Credit shall be allowed when the reinsurance is ceded to an assuming insurer that has been certified by the superintendent as a reinsurer in the state and complies with this section and secures its obligations in accordance with the requirements of Sections 7 through 9 of the Credit for Reinsurance Act. To be eligible for certification, the assuming insurer shall:

(1) be domiciled and licensed to transact insurance or reinsurance in a qualified jurisdiction, as determined by the superintendent pursuant to Section 8 and Subsection A of Section 9 of the Credit for Reinsurance Act;

(2) maintain minimum capital and surplus, or its equivalent, in an amount to be determined by the superintendent pursuant to rule;

(3) maintain financial strength ratings from two or more rating agencies deemed acceptable by the superintendent pursuant to rule;

(4) agree to submit to the jurisdiction of this state, appoint the superintendent as its agent for service of process in the state and agree to provide security for one hundred percent of the assuming insurer's liabilities attributable to reinsurance ceded by United States ceding insurers if it resists enforcement of a final United States judgment;

(5) 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; and

(6) satisfy any other requirements for certification deemed relevant by the superintendent.

B. An association, including incorporated and individual unincorporated underwriters, may be a certified reinsurer. To be eligible for certification, in addition to satisfying the requirements of Subsection A of this section:

(1) 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 any of its members, in an amount determined by the superintendent to provide adequate protection;

(2) 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

(3) within ninety days after its financial statements are due to be filed with the association's domiciliary regulator, the association shall provide to the superintendent 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.

SECTION 8. [NEW MATERIAL] QUALIFIED JURISDICTIONS.--

A. The superintendent 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 superintendent as a certified reinsurer.

B. To determine whether the domiciliary jurisdiction of a non-United-States-assuming insurer is eligible to be recognized as a qualified jurisdiction, the superintendent 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-United-States jurisdiction to reinsurers licensed and domiciled in the United States. A qualified jurisdiction shall agree to share information and cooperate with the superintendent with respect to all certified reinsurers domiciled within that jurisdiction. A jurisdiction shall not be recognized as a qualified jurisdiction if the superintendent has determined that the jurisdiction does not adequately and promptly enforce final United States judgments and arbitration awards. Additional factors may be considered in the discretion of the superintendent.

C. The superintendent shall consider a list of qualified jurisdictions published through the national association of insurance commissioners committee process in determining qualified jurisdictions. If the superintendent approves a jurisdiction as qualified that does not appear on a list of qualified jurisdictions, the superintendent shall provide thoroughly documented justification in accordance with criteria to be developed by rule.

D. United States jurisdictions that meet the requirement for accreditation pursuant to the national association of insurance commissioners financial standards and accreditation program shall be recognized as qualified jurisdictions.

SECTION 9. [NEW MATERIAL] CERTIFIED REINSURERS--RATINGS--REQUIRED SECURITY.--

A. If a certified reinsurer's domiciliary jurisdiction ceases to be a qualified jurisdiction, the superintendent may suspend the certified reinsurer's certification indefinitely, in lieu of revocation.

B. The superintendent 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 superintendent pursuant to rule. The superintendent shall publish a list of all certified reinsurers and their ratings.

C. A certified reinsurer shall secure obligations assumed from United States ceding insurers pursuant to this section at a level consistent with its rating, as specified in rules promulgated by the superintendent.

D. 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 superintendent and consistent with the provisions of this section or in a multi-beneficiary trust in accordance with Paragraph (3) of Subsection D and Subsection E of Section 3 and Sections 4 and 6 of the Credit for Reinsurance Act, except as otherwise provided in this section.

E. If a certified reinsurer maintains a trust to fully secure its obligations subject to Paragraph (3) of Subsection D and Subsection E of Section 3 and Sections 4 and 6 of the Credit for Reinsurance Act 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 pursuant to reinsurance agreements issued or renewed as a certified reinsurer with reduced security as permitted by this section or comparable laws of other United States jurisdictions and for its obligations subject to Paragraph (3) of Subsection D and Subsection E of Section 3 and Sections 4 and 6 of the Credit for Reinsurance Act. It shall be a condition to the grant of certification pursuant to Sections 7 through 9 of the Credit for Reinsurance Act that the certified reinsurer shall have bound itself, by the language of the trust and agreement with the government agency 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.

F. The minimum trusteed surplus requirements provided in Paragraph (3) of Subsection D and Subsection E of Section 3 and Sections 4 and 6 of the Credit for Reinsurance Act are not applicable with respect to a multi-beneficiary trust maintained by a certified reinsurer for the purpose of securing obligations incurred pursuant to this section, except that such trust shall maintain a minimum trusteed surplus of ten million dollars ($10,000,000).

G. With respect to obligations incurred by a certified reinsurer pursuant to this section, if the security is insufficient, the superintendent shall reduce the allowable credit by an amount proportionate to the deficiency, and the superintendent may impose further reductions in allowable credit upon finding that there is a material risk that the certified reinsurer's obligations will not be paid in full when due.

H. For purposes of this section, a certified reinsurer whose certification has been terminated for any reason shall be treated as a certified reinsurer required to secure one hundred percent of its obligations. As used in this subsection, "terminated" refers to revocation, suspension, voluntary surrender and inactive status.

I. If the superintendent continues to assign a higher rating as permitted by Sections 3 through 15 of the Credit for Reinsurance Act, the requirement to secure one hundred percent of its obligations does not apply to a certified reinsurer in inactive status or to a reinsurer whose certification has been suspended.

J. If an applicant for certification has been certified as a reinsurer in an accredited jurisdiction, the superintendent may defer to that jurisdiction's certification and may defer to the rating assigned by that jurisdiction, and such assuming insurer shall be considered to be a certified reinsurer in this state.

K. 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 section, and the superintendent shall assign a rating that takes into account, if relevant, the reasons why the reinsurer is not assuming new business.

SECTION 10. [NEW MATERIAL] RECIPROCAL JURISDICTION REINSURERS.--

A. Credit shall be allowed when reinsurance is ceded to an assuming insurer meeting each of the following conditions:

(1) the assuming insurer shall have its head office or be domiciled in, as applicable, and be licensed in a reciprocal jurisdiction;

(2) the assuming insurer shall have and maintain, on an ongoing basis, minimum capital and surplus, or its equivalent, calculated according to the methodology of its domiciliary jurisdiction, in an amount to be set forth in rules promulgated pursuant to Section 17 of the Credit for Reinsurance Act; provided that if the assuming insurer is an association, including incorporated and individual unincorporated underwriters, it shall have and maintain, on an ongoing basis, minimum capital and surplus equivalents, net of liabilities, calculated according to the methodology applicable in its domiciliary jurisdiction, and a central fund containing a balance in amounts to be set forth in rules promulgated pursuant to Section 17 of the Credit for Reinsurance Act;

(3) the assuming insurer shall have and maintain, on an ongoing basis, a minimum solvency or capital ratio, as applicable, which will be set forth in rules promulgated pursuant to Section 17 of the Credit for Reinsurance Act; provided that if the assuming insurer is an association, including incorporated and individual unincorporated underwriters, it shall have and maintain, on an ongoing basis, a minimum solvency or capital ratio in the reciprocal jurisdiction where the assuming insurer has its head office or is domiciled, as applicable, and is also licensed;

(4) the assuming insurer shall agree and provide adequate assurance to the superintendent in a form specified by the superintendent pursuant to rule, as follows:

(a) the assuming insurer shall provide prompt written notice and explanation to the superintendent if it falls below the minimum requirements set forth in Paragraphs (2) and (3) of this subsection or if any regulatory action is taken against it for serious noncompliance with applicable law;

(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; provided that the superintendent may require that consent for service of process be provided to the superintendent and included in each reinsurance agreement; and further provided that nothing in this subparagraph 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 pursuant to applicable insolvency or delinquency laws;

(c) the assuming insurer shall consent in writing to pay all final judgments, wherever enforcement is sought, obtained by a ceding insurer or its legal successor, that have been declared enforceable in the jurisdiction where the judgment was obtained;

(d) 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 pursuant to 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 resolution estate; and

(e) the assuming insurer shall confirm that it is not currently participating in any solvent scheme of arrangement that involves this state's ceding insurers and shall agree to notify the ceding insurer and the superintendent and to provide security in an amount equal to one hundred percent of the assuming insurer's liabilities to the ceding insurer, should the assuming insurer enter into such a solvent scheme of arrangement; provided that such security shall be in a form consistent with the provisions of the Credit for Reinsurance Act and as specified by the superintendent in rule;

(5) the assuming insurer or its legal successor shall provide, if requested by the superintendent, on behalf of itself and any legal predecessors, certain documentation to the superintendent as specified by the superintendent in rule;

(6) the assuming insurer shall maintain a practice of prompt payment of claims pursuant to reinsurance agreements pursuant to criteria set forth in rule; and

(7) the assuming insurer's supervisory authority shall confirm to the superintendent on an annual basis, as of the preceding December 31 or at the annual date otherwise statutorily reported to the reciprocal jurisdiction, that the assuming insurer complies with the requirements set forth in Paragraphs (2) and (3) of this subsection.

B. Nothing in this section precludes an assuming insurer from providing the superintendent with information on a voluntary basis.

SECTION 11. [NEW MATERIAL] RECIPROCAL JURISDICTIONS.--

A. The superintendent shall timely create and publish a list of reciprocal jurisdictions. A list of reciprocal jurisdictions shall be published through the national association of insurance commissioners committee process. The superintendent's list shall include any reciprocal jurisdiction as defined in Paragraphs (1) and (2) of Subsection F of Section 2 of the Credit for Reinsurance Act and shall consider any other reciprocal jurisdiction included on the national association of insurance commissioners list. The superintendent may approve a jurisdiction that does not appear on the national association of insurance commissioners list of reciprocal jurisdictions in accordance with criteria to be developed pursuant to rules adopted by the superintendent.

B. The superintendent may remove a jurisdiction from the list of reciprocal jurisdictions upon a determination that the jurisdiction no longer meets the requirements of a reciprocal jurisdiction, in accordance with a process set forth in rules adopted by the superintendent, except that the superintendent shall not remove from the list a reciprocal jurisdiction as defined in Paragraphs (1) and (2) of

Subsection F of Section 2 of the Credit for Reinsurance Act. Upon removal of a reciprocal jurisdiction from the list, credit for reinsurance ceded to an assuming insurer that has its home office or is domiciled in that jurisdiction shall be allowed, if otherwise allowed pursuant to the Credit for Reinsurance Act.

SECTION 12. [NEW MATERIAL] RECIPROCAL JURISDICTION ASSUMING INSURERS.--

A. The superintendent shall timely create and publish a list of reciprocal jurisdiction assuming insurers that have satisfied the conditions set forth in this section and to which cessions shall be granted credit. The superintendent may add an assuming insurer to the list if a national association of insurance commissioners accredited jurisdiction has added the assuming insurer to its list of assuming insurers or if, upon initial eligibility for credit for reinsurance, the assuming insurer submits the information to the superintendent as required pursuant to Paragraph (4) of Subsection A of Section 10 of the Credit for Reinsurance Act and complies with any additional requirements that the superintendent may impose by rule, except to the extent that they conflict with an applicable covered agreement.

B. If the superintendent determines that an assuming insurer no longer meets one or more of the requirements pursuant to this section, the superintendent may revoke or suspend the eligibility of the assuming insurer for recognition pursuant to this section in accordance with procedures set forth in rule.

C. 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 pursuant to the contract are secured in accordance with Section 16 of the Credit for Reinsurance Act.

D. 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 pursuant to the contract are secured in a form acceptable to the superintendent and consistent with the provisions of Section 16 of the Credit for Reinsurance Act.

E. 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 ceded liabilities.

F. Nothing in this section shall limit or in any way alter the capacity of parties to a reinsurance agreement to agree on requirements for security or other terms in that reinsurance agreement, except as expressly prohibited by the Credit for Reinsurance Act or other applicable law or rule.

SECTION 13. [NEW MATERIAL] AGREEMENTS OF RECIPROCAL JURISDICTION REINSURERS.--

A. With respect to reciprocal jurisdiction reinsurers, credit may be taken pursuant to this section only for reinsurance agreements entered into, amended or renewed on or after the effective date of the Credit for Reinsurance Act and only with respect to losses incurred and reserves reported on or after the later of:

(1) the date on which the assuming insurer has met all eligibility requirements pursuant to Section 10 of the Credit for Reinsurance Act; and

(2) the effective date of the new reinsurance agreement, amendment or renewal.

B. This section does not alter or impair a ceding insurer's right to take credit for reinsurance, to the extent that credit is not available pursuant to this section, as long as the reinsurance qualifies for credit pursuant to any other applicable provision of the Credit for Reinsurance Act.

C. Nothing in this section shall authorize an assuming insurer to withdraw or reduce the security provided pursuant to any reinsurance agreement except as permitted by the terms of the agreement.

D. Nothing in this section shall limit, or in any way alter, the capacity of parties to any reinsurance agreement to renegotiate the agreement.

E. Credit shall be allowed when the reinsurance is ceded to an assuming insurer not meeting the requirements of Sections 3 through 12 and Subsections A through D of Section 13 of the Credit for Reinsurance Act, but only as to the insurance of risks located in jurisdictions where the reinsurance is required by applicable law or regulation of that jurisdiction.

F. If the assuming insurer is not licensed, accredited or certified to transact insurance or reinsurance in this state, the credit permitted by Paragraphs (2) and (3) of Subsection D of Section 3, Section 4 and Subsections A through C of Section 6 of the Credit for Reinsurance Act shall not be allowed unless the assuming insurer agrees in the reinsurance agreements:

(1) that in the event of the failure of the assuming insurer to perform its obligations pursuant to 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

(2) to designate the superintendent or a designated attorney as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the ceding insurer; provided that 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.

G. If the assuming insurer does not meet the requirements of this section, Subsections B and D of Section 3 and Sections 10 through 13 of the Credit for Reinsurance Act, the credit permitted by Paragraph (3) of Subsection D of Section 3, Subsection E of Section 3 and Sections 4 and 6 of the Credit for Reinsurance Act shall not be allowed unless the assuming insurer agrees in the trust agreements to the following conditions:

(1) notwithstanding any other provision in the trust instrument, if the trust fund is inadequate because it contains an amount less than the amount required by Section 6 of the Credit for Reinsurance Act, or if the grantor of the trust has been declared insolvent or placed into receivership, rehabilitation, liquidation or similar proceedings pursuant to the laws of its state or country of domicile, the trustee shall comply with an order of the government agency with regulatory oversight over the trust or with an order of a court of competent jurisdiction directing the trustee to transfer to the government agency 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 government agency 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 government agency with regulatory oversight determines that the assets of the trust fund or any part of the fund are not necessary to satisfy the claims of the United States ceding insurers of the grantor of the trust, the assets or part of the assets shall be returned by the government agency with regulatory oversight to the trustee for distribution in accordance with the trust agreement; and

(4) the grantor shall waive any right otherwise available to it pursuant to United States law that is inconsistent with this subsection.

SECTION 14. [NEW MATERIAL] REVOCATION OF ACCREDITATION OR CERTIFICATION.--

A. If an accredited or certified reinsurer ceases to meet the requirements for accreditation or certification, the superintendent may suspend or revoke the reinsurer's accreditation or certification.

B. The superintendent shall give the reinsurer notice and opportunity for hearing. The suspension or revocation shall not take effect until after the superintendent's order on hearing unless:

(1) the reinsurer waives its right to hearing;

(2) the superintendent'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 pursuant to Subsection J of Section 9 of the Credit for Reinsurance Act; or

(3) the superintendent finds that an emergency requires immediate action and a court of competent jurisdiction has not stayed the superintendent's action.

C. 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 pursuant to the contract are secured in accordance with Section 16 of the Credit for Reinsurance Act. If a reinsurer's accreditation or certification is revoked, no credit for reinsurance shall be granted after the effective date of the revocation, except to the extent that the reinsurer's obligations pursuant to the contract are secured in accordance with Subsections C through I of Section 9 or Section 16 of the Credit for Reinsurance Act.

SECTION 15. [NEW MATERIAL] CONCENTRATION OF RISK.--

A. A ceding insurer shall take steps to manage its reinsurance recoverables proportionate to its own book of business. A domestic ceding insurer shall notify the superintendent within thirty days after reinsurance recoverables from any single assuming insurer, or group of affiliated assuming insurers, exceeds fifty percent 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.

B. A ceding insurer shall take steps to diversify its reinsurance program. A domestic ceding insurer shall notify the superintendent within thirty days after ceding to any single assuming insurer, or group of affiliated assuming insurers, more than twenty percent 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.

SECTION 16. [NEW MATERIAL] REDUCTION IN LIABILITY.--

A. An asset or a reduction in liability for the reinsurance ceded by a domestic insurer to an assuming insurer not meeting the requirements of Sections 3 through 15 of the Credit for Reinsurance Act shall be allowed in an amount not exceeding the liabilities carried by the ceding insurer; provided that the superintendent may adopt by rule pursuant to Section 17 of the Credit for Reinsurance Act 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 Section 17 of the Credit for Reinsurance Act; and

(3) the circumstances pursuant to which credit will be reduced or eliminated.

B. 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, pursuant to 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 Paragraph (2) of Subsection E of Section 2 of the Credit for Reinsurance Act. This security may be in the form of:

(1) cash;

(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 manual of the securities valuation office, and qualifying as admitted assets;

(3) clean, irrevocable, unconditional letters of credit issued or confirmed by a qualified United States financial institution effective no later than December 31 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 annual statement;

(4) 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

(5) any other form of security acceptable to the superintendent.

SECTION 17. [NEW MATERIAL] PROMULGATION OF RULES.--

A. The superintendent shall adopt rules to implement the provisions of the Credit for Reinsurance Act.

B. The superintendent may adopt rules applicable to reinsurance arrangements as set forth in Subsection C of this section.

C. A rule adopted pursuant to Subsections B through G of this section may apply only to reinsurance relating to:

(1) life insurance policies with guaranteed nonlevel gross premiums or guaranteed nonlevel benefits;

(2) universal life insurance policies with provisions resulting in the ability of a policyholder to keep a policy in force over a secondary guarantee period;

(3) variable annuities with guaranteed death or living benefits;

(4) long-term care insurance policies; or

(5) such other life and health insurance and annuity products as to which the national association of insurance commissioners adopts model regulatory requirements with respect to credit for reinsurance.

D. A rule adopted pursuant to Paragraph (1) or (2) of Subsection C of this section may apply to any treaty containing:

(1) policies issued on or after January 1, 2015; or

(2) policies issued prior to January 1, 2015, if risk pertaining to such pre-2015 policies is ceded in connection with the treaty, in whole or in part, on or after January 1, 2015.

E. A rule adopted pursuant to Subsections B through G of this section may require the ceding insurer, in calculating the amounts or forms of security required to be held pursuant to rules promulgated pursuant to the Credit for Reinsurance Act, to use the valuation manual adopted by the national association of insurance commissioners pursuant to Paragraph (1) of Section 11B of the national association of insurance commissioners standard valuation law, including all amendments adopted by the national association of insurance commissioners and in effect on the date as of which the calculation is made, to the extent applicable.

F. A rule adopted pursuant to Subsections B through G of this section shall not apply to cessions to an assuming insurer that:

(1) meets the conditions set forth in Sections 10 through 12 and Subsections A through D of Section 13 of the Credit for Reinsurance Act;

(2) is certified in this state; or

(3) maintains at least two hundred fifty million dollars ($250,000,000) in capital and surplus when determined in accordance with the national association of insurance commissioners accounting practices and procedures manual, including all amendments thereto adopted by the national association of insurance commissioners, excluding the impact of any permitted or prescribed practices; and

(4) is licensed in at least twenty-six states; or

(5) is licensed in at least ten states, and licensed or accredited in at least thirty-five states.

G. The authority to adopt rules pursuant to Subsections B through F of this section shall not limit the superintendent's general authority to adopt rules pursuant to Subsection A of this section.

SECTION 18. [NEW MATERIAL] INSOLVENCY.--Upon the insolvency of a non-United-States insurer or reinsurer that provides security to fund its obligations in the United States in accordance with the Credit for Reinsurance Act, the assets representing the security shall be maintained in the United States, and claims shall be filed with and valued by the state insurance commissioner with regulatory oversight, and the assets shall be distributed, in accordance with the insurance laws of the state in which the trust is domiciled that are applicable to the liquidation of domestic United States insurance companies.

SECTION 19. REPEAL.--Section 59A-7-11 NMSA 1978 (being Laws 1984, Chapter 127, Section 117, as amended) is repealed.

SECTION 20. EMERGENCY.--It is necessary for the public peace, health and safety that this act take effect immediately.

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