SECTION 7.622. Certification and Rating

(a) Certification.

(1) A certification issued under this section is valid for the following calendar year. To continue the certification, the certified assuming insurer must reapply on or before July 1 of the year that the certification expires.

(2) Following receipt of a certification application, TDI will post on the TDI website notice of the application and instructions on how the public may respond to or comment on the application. The notice will remain posted on the website for at least 30 days before the Commissioner will take final action on the application.

(3) TDI will provide written notice to an assuming insurer stating whether the assuming insurer's application to be a certified assuming insurer has been approved. If the application is approved, the notice will include the certified insurer's assigned rating. TDI will publish on the TDI website a list of all certified assuming insurers and their assigned ratings.

(4) To be eligible for certification, the assuming insurer must:

(A) be domiciled and authorized to transact the business of insurance or reinsurance in a qualified jurisdiction, as determined under Insurance Code §493.1035 and §7.624 of this subchapter;

(B) maintain capital and surplus, or its equivalent, of no less than $250 million calculated in accordance with subsection (b) of this section. An association including incorporated and individual unincorporated underwriters may satisfy the requirement by having minimum capital and surplus equivalents, net of liabilities, of at least $250 million and a joint central fund containing a balance of at least $250 million;

(C) maintain financial strength ratings from two or more NRSROs that the Commissioner has determined to be acceptable. The NRSRO must base its financial strength rating on interactive communication between the NRSRO and the assuming insurer and must not be based solely on publicly available information. The financial strength ratings will be a factor used by the Commissioner in determining the rating that the Commissioner assigns to the assuming insurer. Acceptable NRSROs include the following:

(i) A.M. Best Rating Services, Inc. (Best);

(ii) Fitch Ratings, Inc. (Fitch);

(iii) Kroll Bond Rating Agency, Inc. (Kroll);

(iv) Moody's Investors Service, Inc. (Moody's);

(v) S&P Global Ratings; (S&P) and

(vi) any other NRSRO that the Commissioner determines to be acceptable under §7.627 of this title;

(D) agree to post 100 percent security for the benefit of the ceding insurer, or its estate, on the entry of an order of rehabilitation, liquidation, or conservation, against the ceding insurer;

(E) meet, or agree to, the requirements in Insurance Code §493.1033 and Form CR-1; and

(F) provide additional information necessary to demonstrate the creditworthiness of the assuming insurer.

(b) Rating.

(1) The Commissioner will rate each certified assuming insurer on a legal entity basis with due consideration being given to the group rating where appropriate, except that an association including incorporated and individual unincorporated underwriters that has been approved to do business as a single certified assuming insurer may be evaluated on the basis of its group rating. In determining the rating, the Commissioner will consider relevant factors and review appropriate materials, including:

(A) the certified assuming insurer's financial strength rating from an acceptable NRSRO. The maximum rating that a certified assuming insurer may be assigned will correspond to its financial strength rating level in the security table in Figure: 28 TAC §7.622(b)(1)(A) of this section and as the security table is amended for additional NRSROs determined to be acceptable in accordance with §7.627 of this title. The Commissioner must use the lowest financial strength rating received from an acceptable NRSRO in establishing the maximum rating of a certified assuming insurer. The financial strength rating must be dated within 15 months of the certified assuming insurer's submission. An insurer that fails to obtain or maintain at least two financial strength ratings from acceptable NRSROs will lose the insurer's eligibility for certification.

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(B) the business practices of the certified assuming insurer in dealing with its ceding insurers, including its record of compliance with reinsurance agreement terms and obligations;

(C) for certified assuming insurers domiciled in the United States, the most recent applicable reinsurance schedule filed with the certified assuming insurer's state of domicile;

(D) for certified assuming insurers not domiciled in the United States, the most recent Form CR-F, for property and casualty assuming insurers, or Form CR-S, for life and health assuming insurers, which are adopted by reference;

(E) the reputation of the certified assuming insurer for prompt payment of claims under reinsurance agreements, based on an analysis of ceding insurers' Schedule F reporting of overdue reinsurance recoverables, including the proportion of obligations that are more than 90 days past due or are in dispute, with specific attention given to obligations payable to companies that are in supervision, conservation, receivership or similar proceeding;

(F) regulatory actions against the certified assuming insurer;

(G) the report of the independent auditor on the financial statements of the certified assuming insurer;

(H) for a certified assuming insurer not domiciled in the United States:

(i) its audited financial statements consisting of audited United States GAAP basis statements, if available; audited International Financial Reporting Standards (IFRS) basis statements with an audited footnote reconciling equity and net income to a United States GAAP basis; or with the written permission of the Commissioner, audited IFRS statements with reconciliation to United States GAAP certified by an officer of the company;

(ii) its actuarial opinion and other regulatory filings as filed with the non-United States jurisdiction supervisor; and

(iii) with the initial application for certification, its three prior years' audited financial statements filed with its non-United States jurisdiction supervisor;

(I) the liquidation priority of obligations to a ceding insurer in the certified assuming insurer's domiciliary jurisdiction in the context of an insolvency proceeding;

(J) a certified assuming insurer's participation in any solvent scheme of arrangement, or similar procedure, which involves United States ceding insurers. A certified assuming insurer that proposes participation in a solvent scheme of arrangement must provide the Commissioner with prior written notice, not less than 30 days prior to such participation; and

(K) any other information the Commissioner deems relevant.

(2) As directed by the Commissioner, a certified assuming insurer must adjust the security posted to protect its liabilities to United States ceding insurers as the Commissioner deems appropriate based on TDI's analysis of a certified assuming insurer's reputation for prompt payment of claims under subsection (b)(1)(E) of this section. Subject to any additional adjustments that the Commissioner may deem under this paragraph, the certified assuming insurer must, at a minimum, increase the security posted by one rating level under subsection (b)(1) of this section if:

(A) more than 15 percent of the certified assuming insurer's ceding insurance clients have overdue reinsurance recoverables on paid losses of 90 days or more that are not in dispute and which exceed $100,000 for each ceding insurer; or

(B) the aggregate amount of reinsurance recoverables on paid losses that are not in dispute and are overdue by 90 days or more exceeds $50 million.

(c) Form CR-1 Submission Requirement. The certified assuming insurer applicant must submit with each certification application, a properly executed Form CR-1 as evidence of its:

(1) submission to the jurisdiction of any court of competent jurisdiction in any state of the United States;

(2) appointment of the Commissioner as an agent for service of process in this state;

(3) agreement to provide security for 100 percent of the assuming insurer's liabilities attributable to reinsurance ceded by United States ceding insurers if the assuming insurer resists enforcement of a final United States judgment. The Commissioner may not certify any assuming insurer that is domiciled in a jurisdiction that the Commissioner has determined does not adequately and promptly enforce final United States judgments or arbitration awards;

(4) agreement to notify the Commissioner within 10 days of any regulatory actions taken against it, any change in the provisions of its domiciliary license, or any change in its rating by an approved rating agency, including a statement describing such changes and the reasons for the changes;

(5) agreement to annually file:

(A) information comparable to relevant provisions of the NAIC financial statement for use by insurance markets in accordance with §7.622(d)(3) of this title;

(B) the report of the independent auditor on the financial statements of the insurance enterprise in accordance with §7.622(d)(4) of this title;

(C) audited financial statements, regulatory filings, and actuarial opinion in accordance with §7.622(d)(4) and (5) of this title;

(D) an updated list of all disputed and overdue reinsurance claims regarding reinsurance assumed from United States domestic ceding insurers in accordance with §7.622(d)(6) of this title; and

(E) a statement of its good standing as an insurer or reinsurer with the supervisor of its domiciliary jurisdiction in accordance with §7.622(d)(7) of this title.

(d) Submissions. The certified assuming insurer applicant must comply with the applicable information filing requirements in this subsection and submit the information it agreed to submit under subsection (c) of this section, with any certification application and in a manner consistent with the agreements included in Form CR-1. All information submitted by certified assuming insurers and applicants that is not otherwise public information subject to disclosure will be exempt from disclosure if provided by the Public Information Act, Government Code Chapter 552 and will be withheld from public disclosure. The certified assuming insurer applicant must submit with each certification application:

(1) a statement of any regulatory actions taken against the applicant within three years prior to the application including:

(A) fines and penalties; and

(B) changes in the provisions of the applicant's domiciliary license.

(2) a statement of changes in the applicant's financial strength rating by an acceptable NRSRO including any reports or supporting documentation provided by the NRSRO;

(3) for United States domiciled applicants, the most recent applicable reinsurance schedule filed with the applicant's domestic jurisdiction, or for applicants not domiciled in the United States, the most recent Form CR-F or CR-S, as applicable;

(4) for applicants not domiciled in the United States, the report of the independent auditor on the financial statements of the insurance enterprise. The basis for the auditor's report must be:

(A) audited United States GAAP basis statements, if available;

(B) audited IFRS basis statements with an audited footnote reconciling equity and net income to a United States GAAP basis; or

(C) with the permission of the Commissioner, audited IFRS statements with reconciliation to United States GAAP certified by an officer of the company;

(5) for applicants not domiciled in the United States, the following filings made with the applicant's domestic supervisor:

(A) the actuarial opinion and other regulatory filings; and

(B) audited financial statements for the prior three years;

(6) an updated list of all disputed and overdue reinsurance claims regarding reinsurance assumed from United States domestic ceding insurers. If the applicant's reinsurance obligations:

(A) to United States ceding insurers that are in dispute or more than 90 days past due exceed five percent of its total reinsurance obligations to United States cedents as of the end of its prior financial reporting year; or

(B) to any of the applicant's top 10 United States ceding insurers (based on the amount of outstanding reinsurance obligations as of the end of its prior financial reporting year) that are in dispute or more than 90 days past due exceed 10 percent of its reinsurance obligations to that United States ceding insurers; and

(C) in either situation, the applicant must:

(i) submit notice to the Commissioner of the fact and a detailed explanation regarding the reasons for the amount of disputed or overdue claims exceeding either or both of the levels listed in subparagraphs (A) and (B) of this paragraph;

(ii) a description of the applicant's business practices in dealing with United States ceding insurers;

(iii) a statement that the applicant commits to comply with all contractual requirements applicable to reinsurance contracts with United States ceding insurers; and

(iv) any such additional information concerning the applicant's claims practices with regard to any or all United States ceding insurers that the Commissioner may request following receipt of the notice;

(7) a certification from the certified assuming insurer's domestic regulator that the certified assuming insurer is in good standing and maintains capital in excess of the jurisdiction's highest regulatory action level;

(8) evidence of the applicant's financial strength by:

(A) confirming all interactive financial strength ratings currently maintained by the applicant;

(B) specifying the type of financial strength rating; and if the financial strength rating is not on a stand-alone basis, provide the rationale for the group rating;

(C) submitting copies of full NRSRO reports dated within 15 months of the application date all financial strength ratings currently maintained by the applicant, except if a full report is not available, the applicant must provide a letter from the applicable NRSRO affirming its current financial strength rating; and

(D) providing an explanation of any changes in the financial strength rating during the last three years;

(9) the mechanisms the applicant will use to secure obligations incurred as a certified assuming insurer in accordance with Insurance Code §§493.1033-493.1038 and this subchapter. If the applicant intends to utilize a multibeneficiary trust for this purpose, the applicant must submit:

(A) a copy of the approval from the domiciliary regulator with regulatory oversight of the 100 percent collateral and reduced collateral multibeneficiary trusts or its intention to secure the approval of the domiciliary regulator of the trust before either trust can be used;

(B) the form of the trust that will be used to secure obligations incurred as a certified assuming insurer; and

(C) the form of the trust that will be used to secure obligations incurred outside of the applicant's certified assuming insurer status; and

(10) a description of the applicant's past, present or proposed future participation in any solvent scheme of arrangement, or similar procedure, involving United States ceding insurers and a statement that the applicant will notify the Commissioner in writing of any future proposed participation by the certified assuming insurer in a solvent scheme of arrangement, or similar procedure, not less than 30 days prior to such participation;

(11) applicant information, including the applicant's:

(A) full name;

(B) physical address for its principal place of business;

(C) mailing address;

(D) NAIC number, United States federal tax identification number, and ISI number; and

(E) contact individual's name, phone number, and email; and

(12) other information that the Commissioner may reasonably require.

Source Note: The provisions of this §7.622 adopted to be effective June 19, 2018, 43 TexReg 3888