Section 442.3 - Credit For Reinsurance And Reciprocal Jurisdictions.(a) The commissioner shall allow credit for reinsurance ceded by a domestic insurer to an assuming insurer that is licensed to write reinsurance by, and has its head office or is domiciled in, a reciprocal jurisdiction that meets the requirements of this section.(c) Credit shall be allowed if reinsurance is ceded from an insurer domiciled in this Commonwealth to an assuming insurer meeting each of the following conditions: (1) The assuming insurer must be licensed to transact reinsurance by and have its head office or be domiciled in a reciprocal jurisdiction.(2) The assuming insurer must have and maintain on an ongoing basis minimum capital and surplus, or its equivalent, calculated on at least an annual basis as of the preceding December 31 or at the annual date otherwise statutorily reported to the reciprocal jurisdiction, and confirmed as provided under paragraph (7) according to the methodology of its domiciliary jurisdiction in the following amounts, which may be modified by the commissioner by regulation: (i) at least $250,000,000; or(ii) if the assuming insurer is an association, including incorporated and individual unincorporated underwriters: (A) minimum capital and surplus equivalents, net of liabilities, or own funds of the equivalent of at least $250,000,000; and(B) a central fund containing a balance of the equivalent of at least $250,000,000.(3) The assuming insurer must have and maintain, on an ongoing basis, a minimum solvency or capital ratio, as follows: (i) if the assuming insurer has its head office or is domiciled in a reciprocal jurisdiction as provided under paragraph (1) of the definition of "reciprocal jurisdiction," the ratio specified in the applicable covered agreement;(ii) if the assuming insurer is domiciled in a reciprocal jurisdiction under paragraph (2) of the definition of "reciprocal jurisdiction", a risk-based capital ratio of 300% of the authorized control level calculated in accordance with the formula developed by the National Association of Insurance Commissioners; or(iii) if the assuming insurer is domiciled in a reciprocal jurisdiction under paragraph (3) of the definition of "reciprocal jurisdiction", after consultation with the reciprocal jurisdiction and considering any recommendations published through the National Association of Insurance Commissioners committee process, the solvency or capital ratio as the commissioner determines to be an effective measure of solvency.(4) The assuming insurer must agree to and provide adequate assurance, by executing a form as prescribed by the commissioner, of its agreement to the following: (i) The assuming insurer must agree to provide prompt written notice and explanation to the commissioner if it falls below the minimum requirements under paragraphs (2) and (3) , or if any regulatory action is taken against it for serious noncompliance with law.(ii) The assuming insurer must consent in writing to the jurisdiction of the courts of this Commonwealth and to the appointment of the commissioner as agent for service of process. (A) The commissioner may require that the consent be provided and included in each reinsurance agreement under the commissioner's jurisdiction.(B) Nothing under this paragraph shall limit or alter the capacity of a party to a reinsurance agreement to agree to alternative dispute resolution mechanisms, except to the extent the agreements are unenforceable under applicable insolvency or delinquency laws.(iii) The assuming insurer must consent in writing to pay each final judgment, wherever enforcement is sought, obtained by a ceding insurer, that have been declared enforceable in the territory where the judgment was obtained.(iv) Each reinsurance agreement must include a provision requiring the assuming insurer to provide security in an amount equal to one hundred percent (100%) of the assuming insurer's liabilities attributable to reinsurance ceded pursuant to the agreement if the assuming insurer resists enforcement of a final judgment that is enforceable under 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 this estate, if applicable.(v) The assuming insurer must: (A) Confirm that it is not presently participating in a solvent scheme of arrangement, which involves this Commonwealth's ceding insurers.(B) Agree to notify the ceding insurer and the commissioner if it enters into a solvent scheme of arrangement.(C) Agree to provide security to the ceding insurer in an amount equal to 100% of the assuming insurer's liabilities to the ceding insurer if the assuming insurer enters into a solvent scheme of arrangement.(D) Agree to provide security in a form consistent with all of the following:(I) The provisions of section 319.1(a.2)(2) applicable to certified reinsurers.(III) 31 Pa.Code Ch. 163 (relating to requirements for funds held as security for the payment of obligations of unlicensed, unqualified reinsurers).(E) For purposes of this subparagraph, the term "solvent scheme of arrangement" means a foreign or alien statutory or regulatory compromise procedure subject to requisite majority creditor approval and judicial sanction in the assuming insurer's home jurisdiction either to finally commute liabilities of duly noticed class members or creditors of a solvent debtor on a final basis, and which may be subject to jurisdictional recognition and enforcement of the arrangement by a governing authority outside the ceding insurer's home jurisdiction.(vi) An assuming insurer shall agree in writing to meet the applicable information filing requirements of paragraph (5) of this subsection.(5) An assuming insurer or its legal successor shall provide, if requested by the commissioner, on behalf of itself and any legal predecessors, the following documentation to the commissioner: (i) for the two years preceding entry into the reinsurance agreement and on an annual basis thereafter, the assuming insurer's annual audited financial statements, in accordance with the law of the jurisdiction of its head office or domiciliary jurisdiction, as applicable, including the external audit report;(ii) for the two years preceding entry into the reinsurance agreement, the solvency and financial condition report or actuarial opinion, if filed with the assuming insurer's supervisor;(iii) prior to entry into the reinsurance agreement and not more often than semi-annually thereafter, an updated list of each disputed and overdue reinsurance claims outstanding for at least 90 days, regarding reinsurance assumed from ceding insurers domiciled in the United States; and(iv) prior to entry into the reinsurance agreement and not more often than semi-annually thereafter, information regarding the assuming insurer's assumed reinsurance by ceding insurer, ceded reinsurance by the assuming insurer and reinsurance recoverable on paid and unpaid losses by the assuming insurer to allow for the evaluation of the criteria under paragraph (6).(6) The assuming insurer must maintain a practice of prompt payment of claims under reinsurance agreements. The lack of prompt payment shall be evidenced by any of the following criteria: (i) More than 15% of the reinsurance recoverables from the assuming insurer are overdue and in dispute as reported to the commissioner.(ii) More than 15% of the assuming insurer's reinsurance recoverables on paid losses are at least 90 days overdue, are not in dispute and exceed $100,000 for each ceding insurer or as otherwise specified in a covered agreement.(iii) The aggregate amount of reinsurance recoverable on paid losses which are not in dispute, but are overdue by at least 90 days, exceeds $50,000,000 or as otherwise specified in a covered agreement.(7) The assuming insurer's supervisor shall confirm, in writing, to the commissioner 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 under paragraphs (2) and (3).(8) Nothing under this subsection shall preclude an assuming insurer from providing the commissioner with information on a voluntary basis.(c.1) The department shall publish the prescribed form under subsection (c)(4) on the department's Internet website and shall submit the form to the Legislative Reference Bureau for publication in the Pennsylvania Bulletin.(d) The commissioner shall timely create and publish a list of reciprocal jurisdictions on the department's Internet website and shall submit the list to the Legislative Reference Bureau for publication in the Pennsylvania Bulletin. The following shall apply: (1) A list of reciprocal jurisdictions is published through the National Association of Insurance Commissioners committee process. The commissioner shall include on the list any reciprocal jurisdiction the meets the requirements of subsection (k)(1) and (2).(2) The commissioner shall consider any other reciprocal jurisdiction that is included on the list of reciprocal jurisdictions published through the National Association of Insurance Commissioners committee process.(3) The commissioner may approve a jurisdiction that does not meet the requirements of subsection (k)(1) or (2) as provided by law, regulation or in accordance with criteria published through the National Association of Insurance Commissioners committee process.(4) The commissioner may remove a jurisdiction from the list of reciprocal jurisdictions upon a determination that the jurisdiction no longer meets the requirements of this section or other law or regulation, or in accordance with a process published through the National Association of Insurance Commissioners committee process, except that the commissioner may not remove a reciprocal jurisdiction that meets the requirements of subsection (k)(1) or (2). Upon removal of a reciprocal jurisdiction from the list, credit for reinsurance ceded to an assuming insurer which has its home office or is domiciled in a jurisdiction shall be allowed only if allowed under section 319.1.(e) The commissioner shall timely create and publish a list of assuming insurers that have satisfied the conditions under this section and to which cessions shall be granted credit. The following shall apply: (1) The commissioner shall create the list in accordance with the following requirements: (i) The commissioner may add an assuming insurer to the list if an National Association of Insurance Commissioners-accredited jurisdiction has added the assuming insurer to a list of the assuming insurers.(ii) The commissioner may add an assuming insurer to the list if, upon initial eligibility, the assuming insurer submits the information to the commissioner as required under subsection (c)(4) and complies with any additional requirements the commissioner may impose by regulation, except to the extent that the the additional requirements conflict with an applicable covered agreement.(iii) If a National Association of Insurance Commissioners-accredited jurisdiction has determined that the conditions under subsection (c) have been met, the commissioner may defer to the jurisdiction's determination and add the assuming insurer to the list of assuming insurers to which cessions shall be granted credit in accordance with this subsection. The commissioner may accept financial documentation filed with another National Association of Insurance Commissioners-accredited jurisdiction or with the National Association of Insurance Commissioners in satisfaction of the requirements of subsection (c).(iv) If requesting that the commissioner defer to another National Association of Insurance Commissioners-accredited jurisdiction's determination, the assuming insurer shall execute the form under subsection (c)(4) and provide additional information required by the commissioner. A state that has received such a request must notify other state insurance regulators through the National Association of Insurance Commissioners committee process and provide the relevant information with respect to the determination of eligibility.(2) If the commissioner determines that an assuming insurer no longer meets one or more of the requirements under this section, the commissioner may revoke or suspend the eligibility of the assuming insurer for recognition under this section. (i) While an assuming insurer's eligibility is suspended, a reinsurance agreement issued, amended or renewed after the effective date of the suspension may not qualify for credit except to the extent that the assuming insurer's obligations under the contract are secured in accordance with section 319.1(b).(ii) If an assuming insurer's eligibility is revoked, a credit for reinsurance may not 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 under the contract are secured in a form acceptable to the commissioner in accordance with section 319.1(b).(f) Before denying statement credit or imposing a requirement to post security under section 319.1(b)(2) or adopting an similar requirement that will have substantially the same regulatory impact on security, the commissioner shall: (1) Communicate with the ceding insurer, the assuming insurer and the assuming insurer's supervisor that the assuming insurer no longer satisfies one of the conditions listed in subsection (c).(2) Provide the assuming insurer with 30 days from the initial communication to submit a plan to remedy the defect and 90 days from the initial communication to remedy the defect except in exceptional circumstances in which a shorter period is necessary for policyholder and consumer protection.(3) After the expiration of the period under paragraph (2), if the commissioner determines that no or insufficient action was taken by the assuming insurer, the commissioner may take any of the actions provided under this subsection.(4) Provide a written explanation to the assuming insurer of any of the requirements under this subsection.(g) 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.(h) Nothing under this subsection shall limit or alter the capacity of a party to a reinsurance agreement to agree on requirements for security or other terms in the reinsurance agreement, except as expressly prohibited under section 319 or other law or regulation.(i) Credit may be taken under this section only for reinsurance agreements entered into, amended or renewed on or after the effective date of this section and only with respect to losses incurred and reserves reported on or after the later of the date on which the assuming insurer has met all eligibility requirements under subsection (a), and the effective date of the new reinsurance agreement, amendment or renewal. The following shall apply:(1) This subsection shall not alter or impair a ceding insurer's right to take credit for reinsurance, to the extent that credit is not available under this subsection, as long as the reinsurance qualifies for credit under any other provision of section 319.1.(2) Nothing under this subsection shall authorize an assuming insurer to withdraw or reduce the security provided under any reinsurance agreement except as permitted by the terms of the agreement.(3) Nothing under this subsection shall limit or alter the capacity of a party to any reinsurance agreement to renegotiate the agreement.(j) The commissioner may promulgate regulations to carry out the provisions of this section.(k) For the purposes of this section, a "reciprocal jurisdiction" means a jurisdiction, as designated by the commissioner under subsection (d) that meets one of the following requirements: (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, for a covered agreement between the United States and European Union, is a member state of the European Union. For purposes of this paragraph, a "covered agreement" is an agreement entered into under 31 U.S.C. §§ 313 (relating to Federal Insurance Office) and 314 (relating to covered agreements) 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 Commonwealth or for allowing the ceding insurer to recognize credit for reinsurance.(2) A United States jurisdiction that the commissioner verifies has been accredited pursuant to the National Association of Insurance Commissioners financial standards and accreditation program.(3) A qualified jurisdiction, as determined by the commissioner under section 319.1(a.2)(2) which is not otherwise described under paragraph (1) or (2) and which the commissioner determines meets all of the following additional requirements: (i) Provides that an insurer that has its head office or is domiciled in the qualified jurisdiction shall receive credit for reinsurance ceded to a United States-domiciled assuming insurer in the same manner as credit for reinsurance is received for reinsurance assumed by insurers domiciled in such qualified jurisdictions.(ii) Does not require a United States-domiciled assuming insurer to establish or maintain a local presence as a condition for entering into a reinsurance agreement with any ceding insurer subject to regulation by the non-United States jurisdiction or as a condition to allow the ceding insurer to recognize credit for such reinsurance.(iii) Recognizes the United States state regulatory approach to group supervision and group capital by providing written confirmation by a competent regulatory authority, in the qualified jurisdiction, that insurers and insurance groups that are domiciled or maintain their headquarters in this Commonwealth or another jurisdiction accredited by the National Association of Insurance Commissioners shall be subject only to worldwide prudential insurance group supervision including worldwide group governance, solvency and capital and reporting, as applicable, by the commissioner or the commissioner of the domiciliary state and will not be subject to group supervision at the level of worldwide parent undertaking of the insurance or reinsurance group by the qualified jurisdiction.(iv) Provides written confirmation by a competent regulatory authority in the qualified jurisdiction that information regarding insurers and their parent, subsidiary or affiliated entities, if applicable, shall be provided to the commissioner in accordance with a memorandum of understanding or similar document between the commissioner and such qualified jurisdiction, including, but not limited to, the international association of insurance supervisors multilateral memorandum of understanding or multilateral memoranda of understanding coordinated by the National Association of Insurance Commissioners.(l) For purposes of this section, a "qualified jurisdiction" means a jurisdiction that meets the requirements of subsection (k).Added by P.L. TBD 2020 No. 113, § 1.1, eff. 11/3/2020.