International Insurers Departmentplanofoperation

International Insurers Departmentplanofoperation

2018

NAICIID

International Insurers DepartmentPlanofOperation

NAIC Contacts

AndyDaleo,SeniorProperty/CasualtyFinancialAnalysisManagerRobertSchump,SurplusLinesInformationServicesProgramManager

Background

TheNAIChasalonghistoryofsupportingstateinsurancedepartments’regulatoryeffortsregardinginsurersdomiciledoutsideoftheUnitedStates(alien)participatingintheU.S.nonadmittedmarket.Initiallyactingonlyasarepositoryforalieninsurerfinancialrecords,theNAIChastransitionedovertheyearstoitspresentroleastherecognizedauthorityforalieninsurers(hereafter,Insurer(s)referstoaliendomiciledcompaniesandLloyd’ssyndicates)seekingapprovaltowritesurpluslinesbusinessinallU.S.states and territories.TheInternationalInsurersDepartmentPlanofOperation(Plan)detailsthestandardsandprocesseswhichInsurersmustmeetinordertogainandmaintaininclusionontheQuarterlyListingofAlienInsurers(QuarterlyListing).ThePlanthatfollowsprovidesadescriptionoftherolesNAICstaffandselected state regulatorsperform in the oversight of alien surplus linesinsurers.

Introduction

ThePlandescribeshowtheNAIC’sIIDwilloperateandhowInsurersobtaininclusionontheQuarterlyListing.TheIIDiscomposedofexperiencedfinancialanalystswhoreviewapplicationsandrenewalfilingdocuments,preparewrittenanalyses,andprovidesupporttoNAICsurpluslinescommitteesandworkinggroups.TheIIDalsoincludesanInternalReviewCommittee (InternalCommittee)thatconsistsofNAICdirectors,managers,attorneys,andanalysts.TheInternalCommitteereviewsIIDanalysesandprovides areport ofrecommendation to theSurplusLines(C) WorkingGroup(WorkingGroup). The Property and Casualty Insurance (C) Committee has no direct involvement in making or approving recommendations regarding alien surplus lines insurers and is designated the “Appeal Committee” for decisions made by the Working Group.

TheIIDfunctionsonbehalfofstatedepartmentsofinsurancebymaintainingqualifyingstandardsforInsurersdomiciledoutsideoftheU.S.seekingeligibilitytowritedirectsurpluslines.Section524(2)[1]ofthe2010Dodd-FrankWallStreetandConsumerProtectionActrecognizestheQuarterlyListingasidentifyingInsurersforwhichstatesmaynotprohibitbrokersfromplacingorprocuringnonadmittedinsuranceintheU.S.TheQuarterlyListingisapublicdocumentthatispostedontheProductspageoftheNAICwebsite.ThislistincludesInsurersthatqualifyforlistingasoutlinedinSectionII-Core

RequirementsandGuidelinesforInclusionontheQuarterlyListing.Modificationstolistedcompaniesaresummarized withineach QuarterlyListing. The Working Group will make the final determination of all Insurer eligibility.

TheWorkingGroupprovidesoversighttotheIIDandreportstotheSurplusLines(C)TaskForce(TaskForce),whichfunctionsundertheNAICPropertyandCasualtyInsurance(C)Committee.TheWorkingGroupiscomposedofstateregulatorswithexperienceinfinancialanalysisandsurpluslinesregulation.TheWorkingGroupprovidestheIIDwithguidanceandexpertiserelativetoapplicationsandrenewalsaswellasregulatorypolicyandpracticeswithrespecttoInsurerslistedonorseekinginclusionontheQuarterlyListing.

I.ApplicationProcess

AnInsurerplanningtowriteU.S.surpluslinesandrequestinginclusionontheQuarterlyListingwillfirstregisteratOPTins®. OPTins®isanelectronicfilingandpaymentsystemdesignedforsurpluslines.Followingregistration,anInsurerwillcompleteanduploadanapplicationandallotherdocumentsindicatedasrequiredforlisting.Additionally,acomprehensivelistofrequiredfilingscanbefoundwithinthe“RelatedDocuments”tabavailableontheWorkingGroupwebpage.AlsothroughOPTins®,theapplicantwillremita non-refundable electronicpaymentintheamountindicatedintheScheduleofFees,aseparatedocumentfoundontheWorkingGroup’swebpageandwithinOPTins®.ThefeeisusedtocoverthecostofprocessingandevaluatingtheInsurer'srequestforinclusionontheQuarterlyListing.Atthetimetheapplicationissubmitted,theInsureragreestoprovideadditionalinformationasmayberequestedbytheIID.TheIIDwillcontacttheapplicant’s domiciliaryregulatorto inquireabouttheInsurer’scurrentstanding.

The IIDwillreviewandevaluatethe informationsubmitted byInsurers requestinginclusion on theQuarterlyListing.TheIIDevaluateswhethertheInsurermeetsordoesnotmeetthestandardssetforthinSectionII-CoreRequirementsandGuidelinesforInclusionontheQuarterlyListingandwillpresenttheapplicationtotheInternalCommitteetodeterminearecommendation. TheInternalCommittee’srecommendationwillbepresentedtotheWorkingGroupforconsideration.FollowingdeterminationbytheWorkingGroup,aletterdetailingapprovalordenialwillbesenttotheInsurer.Subsequently, ifapproved, theIIDwill includetheInsurer in thenextQuarterlyListing.

TheQuarterlyListingispublishedonJanuary1st,April1st,July1st,andOctober1st.Acompleteapplicationmustbereceivednofewerthan90daysinadvanceofthepublicationdateinwhichtheInsurerappliestobelisted.Iftheapplicationisreceivedfewerthan90dayspriortotheintendedpublicationdate, it willnot be considered until thefollowingquarterlypublication release. The IID will provide notice to an applicant of the application determination a minimum of ten calendar days in advance of the intended listing date.

TheIIDreservestherighttoaskquestions,makecomments,orseekclarificationofanyconcernsduringitsreview ofInsurerapplications.Ifallquestionsand/orconcerns(e.g.,receiptofrequireddocumentsandIIDrequestedexplanationsandsupportingdocumentation)arenotresolvedwithinasix-monthperiodoftheinitialapplicationsubmissiondate,theapplicationwillberejectedandaletterinformingtheInsurerofthedecisionwillbeissued.RefertoSectionIII-ProcessforReconsiderationofanApplicationRejection.Allapplicationfeesare non-refundable.

II.CoreRequirements andGuidelinesfor Inclusion onthe Quarterly Listing

A.Shareholders’EquityFunds(See Lloyd’s Notation below)

Aminimumshareholders’equityamountof$45.0millionmustbemaintainedonacontinuousbasis.DuringthecourseofanIIDanalysis,itwillbeevaluatedwhethershareholders’equityisadequategiventheriskprofile.Intheevaluationoftheadequacyofshareholders’equity,thefollowingkeyfactorsmaybeconsidered bytheIID:

  • Operatinghistoryand trends;
  • Qualityand diversification of assets;
  • Mixof businessandgeographicdiversification;
  • Grossinsurance leverage;
  • Reinsurance programand qualityof reinsurers;
  • Grossreserveleverage;
  • Liquidity;
  • Dividend history; and,
  • Otherrelevantfactors

Ifthere is a determinationthatshareholders’equityisinadequatebasedontheanalysisoftheriskprofile, equityabove theminimum amount of $45.0 million mayberequired.

Lloyd’s Notation

Inlieuofindividualshareholders’equity,Lloyd’ssyndicatesarerequiredtoreportaU.S.trustfundofnotlessthan$100.0millionavailableforthebenefitofallLloyd’sU.S.surpluslinespolicyholders.

B.U.S. Trust Fund

ThepurposeforestablishingatrustfundistoprovideadditionalassurancethatU.S.policyholdersaresecure.Thetrust fundmustconsist ofcashdepositedwith thetrustee,securities,oranacceptableletterofcreditonbehalfofU.S.policyholdersatanappropriatelevel.Withregardtothecompositionofthetrustfund,creditwillbeallowedonlyforsecuritiesreadilymarketableonaregulatedU.S.securitiesexchangeorthosesecuritiesdesignatedbytheNAIC’sSecuritiesValuationOffice.Anacceptableletterofcreditisdefinedasclean,unconditional,irrevocable,andissuedorconfirmedbyaqualifiedU.S.financialinstitution.

Inestablishingitstrustfund,aninsurancecompanymustmaintainsuchfundat,andenterintoanagreementwith,aqualifiedU.S.financialinstitution.TheagreementmustcontainprovisionsconsistentwiththeIIDmodeldocument,Trust Agreement for Alien Excess or Surplus Lines Insurers InnocasemayatrustagreementhaveanexpirationdateoflessthanfiveyearsfromthedatetheInsurernotifiesthetrusteeofitsintentiontoterminatethetrustfund.ForpurposesofcomplyingwiththetrustfundrequirementaswellastheLloyd’sUnitedStates Situs Excess or SurplusLines Trust Deed,aqualified U.S. financial institution:

  • Isorganizedor(inthecaseofaU.S.officeofaforeignbankingorganization)licensedunder thelawsof theU.S. or anystate thereof;
  • Anationalbank,statebank,ortrustcompanywhichisadequatelycapitalizedandqualifiedtoacceptsecuritiesasdeterminedbythestandardsadoptedby theU.S.bankingregulatorsandregulatedbystatebankinglawsoramemberoftheFederalReservesystem;and
  • Hasbeengrantedauthoritytooperatewithtrustpowers,ifsuchqualifiedU.S.financialinstitutionis to act as thefiduciaryof the trust fund.

Determiningthe Trust FundLevel

Inthecaseofaninsurancecompany,forbusinesswrittenonorafterJanuary1,1998,thetrustfundminimumamountwillbebasedontheU.S.grosssurpluslinesliabilitiesorthedirectnonadmittedU.S.liabilitiesexcludingliabilitiesarisingfromaviation,oceanmarineandtransportationinsurance,anddirectplacementsasfollows:

TrustFundCalculation

  • 30%of anyamount up tothe first $200.0 million,plus
  • 25%of anyamount up tothe next $300.0 million,plus
  • 20%of anyamount up tothe next $500.0 million,plus
  • 15%of anyamount in excess of $1.0 billion

Innoeventwilltherequired trustfundminimum amount,despitethecalculationabove,belessthan$5.4 million or in excess of $250 million.

Asdescribedabove,theliabilitieswillbedeterminednolessthanannuallyandreportedtothetrusteeandtheIIDnolaterthanJune30thofeachyear.Theactuarywhoopinesontheliabilities must bea member ofarecognized professional actuarial body.

InthecaseofLloyd’ssyndicates,forthetotalofallyearsofaccount,thetrustfundminimumamountfor each syndicate willbebasedonthesyndicate’s grossU.S.surpluslinesliabilitiesusingtheTrustFundCalculationabove.

Inextenuatingsituations(e.g.,potentiallegalactiononexposuresnotyetincludedwithingrosslossreserves)there maybeaneedtorequire atrustfundbalancethatisgreater thanthenormaltrustfundcalculationbasedontheInsurer’sriskprofile.TheIIDwillconsiderthefollowingfactors in determining anappropriatetrust fund level:

  • ThetypesandamountsofcoveragewhichtheInsurerwritesorproposestowriteintheU.S.;
  • The valuation of the assets that compose the trust fund may be adjusted for anyquestionablebalances; and,
  • Theterms and conditionsasoutlined within the trustagreement.

Process for Reconsideration of a Trust Fund Level

In the event of a determination that a trust fund balance greater than the calculated minimum level is appropriate, a written request for reconsideration may be submitted if the Insurer objects to the determination. In order to request reconsideration, all the following criteria must be met:

  • The request must be received by the IID within 30 days of the date on the trust fund adjustment letter;
  • The request must be in letter format and signed by an officer of the Insurer; and,
  • The request must include a comprehensive rationale for disagreement with regard to the determined trust fund level.

The IID will evaluate the appeal with consideration given to the information provided within the request letter and all such information will be presented to the Working Group to determine a recommendation. The Working Group’s recommendation will then be presented at a regulator-only Appeal Committee meeting for consideration. A representative of the Working Group and the Insurer will be allowed to present. Following review and a determination by the Appeal Committee, the IID will be instructed to send to the Insured a letter detailing approval or denial of the request.

C.EthicsandIntegrity

Insurermanagementwillhaveaprovenanddemonstrabletrackrecordofrelevantexperience,competence,andintegrity.Biographicalaffidavitswillbeconsideredasonesourceforassessingthe presence of theseattributes.

D.U.S. BranchOffice

AnInsurer formed withan existingU.S.branchoffice is prohibitedfrom applyingfor inclusionontheQuarterlyListing,andInsurerscurrentlyincludedontheQuarterlyListingwillbede-listedifaU.S. branch officeis established.

E. Lloyd’sIncidentalSyndicates

ALloyd’sincidentalsyndicateisformedasaportionofthehostsyndicate.Theincidentalsyndicateissubjecttothesamecapitalsettingandbusinessplanasthehostsyndicate.Lloyd’sincidentalsyndicatesarepermittedtoapplyforinclusionontheQuarterlyListingundertheconditionthattheyestablishaseparateLloyd’sU.S.SitusExcessorSurplusLines Trust Deedand commit to annualreportingunder its incidentalsyndicatenumber.

III.Process forReconsideration ofanApplication Rejection

Intheeventofrejection,awrittenrequestforreconsiderationmaybesubmittediftheInsurerobjectstothedetermination.Inordertorequestreconsideration,allthefollowingcriteriamustbemet:

  • Therequest must bereceived bytheIID within 30daysof thedate on the rejectionletter;
  • Therequest must bein letterformat and signedbyanofficer oftheInsurer; and,
  • Each of the rejection letter issues must be addressed with detailed explanations andsupportingdocumentation.

TheIIDwillre-evaluatetheapplicationwithconsiderationgiventotheinformationprovidedwithin the request letter and all such information will be presented to the Working Group to determine a recommendation. The Working Group’s recommendation will be presented at a regulator-only Appeal Committee meeting for consideration. A representative of the Working Group and the rejected applicant will be allowed to present. Following review and a determination by the Appeal Committee, the IID will be instructed to send to the Insurer a letter detailing approval or denial of the request.

IfanInsurerdoesnotsubmitareconsiderationletterwithin30daysofthedateontherejectionletter,anyrequestforreconsiderationisconsideredwaivedandtheInsurerwillberequiredtosubmita newapplicationalongwith the appropriate fee and all required supportingdocumentation.

IV.Ongoing Quarterly ListingEligibility

InsurersincludedontheQuarterlyListingaresubjecttoongoingreview,whichincludesannualandinterimcomplianceand qualitativeandquantitativeanalysis.

A.CoreAreas ofInsurer ComplianceAnnualRenewalFiling

AlllistedInsurersarerequiredtofileanannualrenewalpackage and mustuploadallrequiredrenewalfilingdocumentstoOPTins®byJune30th.Acomprehensivelistofrequiredfilingscanbefoundwithinthe“RelatedDocuments”tabavailableontheWorkingGroupwebpage.FilingssubmittedsubsequenttoJune30thwillbesubjecttolatefeesasdefinedwithintheScheduleofFeesontheNAICwebsite.IfanInsurerfailstosubmititsannualrenewal filingbyJuly31st, it will be subjectto de-listing.

Change of Control and/or Merger of Insurer

Intheeventofachangeofcontroland/ormerger,theInsurermustprovidenotice15daysprior totheeffectivedateofthetransaction.TheInsurermustreapplywithin45daysfollowingtheeffectivedateofthechangeofcontroland/ormergeroftheInsurerinordertomaintainitslisting.Failuretoprovidetimelynoticeand/orre-applicationmayresultinde-listingand/or late feesasdefined within the Schedule ofFees.

Decline in Equity(Doesnot applytoLloyd’s Syndicates)

IfanInsurer’sequityhasdeclinedorisexpectedtodeclineby 10%orgreatercomparedtothemostrecentannualfiling,itmustnotifytheIIDimmediately.Ifshareholders’equityhasdroppedbelowtheminimumstandarddescribedinSectionII.A-Shareholders’EquityFunds,theInsurermustimmediately informtheIID.Failuretoprovidetimelynoticewillresultinlatefees,asdefinedwithintheScheduleofFees.IfanInsurerisunabletoincreaseequitytotherequired level within 15 businessdays, it will besubject to de-listing.

TrustFund Monitoring

AnInsurerisrequiredtomonitorthetrustfundbalancetoensurethatitmeetstheminimumamountandtakesmarketfluctuationsintoconsideration.TheIIDwillperiodicallyreviewthemarketvalueofeachInsurer'sU.S.trustfundinordertoensurethatitcontinuestomeettherequired minimum balance.

B.IIDAnnualand OngoingAnalysisofQuarterlyListedInsurers

TheIIDanalyzessubmittedfilingdocumentsonanannualandongoingbasis.TheIIDmayrequestadditionalinformationasaresultoftheanalysis.IfanInsurerfailstofilealladditionalrequestedinformationwithinthespecifiedtimeframe,itmaybesubjecttode-listing.Following theoverallanalysisprocess,theInsurerwillberecommendedtotheWorking Groupforrenewalorde-listing.Followingreview and a determinationbytheWorkingGroup,aletterwillbesenttotheInsurer.

C.Examination ofInsurer

TheIIDmayrecommendthataninsurersubmittoaspecialexaminationofitsaffairstoverifycontinuingcompliance.IftheWorkingGroupapprovestherecommendation,theinsurerwill agree to submit to a specialexaminationand payallexpenses or will be de-listed.

V.De-listing

TheIIDwillreviewandevaluateinformationobtainedfrom,butnotlimitedto,industrysources,ratingagencies,insurerwebsitesandnoticesregardingequitydepletion,annualrenewalfilingdocuments,and trustfundlevels. When theIIDdeterminesanInsurer is not in compliance with thePlanorthetrustfundand/orposessolvencyconcerns,theIIDmaypresenttheInsurertotheInternalCommitteetodetermineade-listingrecommendation.TheInternalCommittee’srecommendationwillbepresentedtotheWorkingGroup.Upondeterminationofnon-complianceand/or solvencyconcerns by the Working Group, theInsurerwill bede-listed andnotified via letter.

VI.Process forReconsideration ofDe-listing

Intheeventofde-listing,awrittenrequestforreconsiderationmaybesubmittediftheInsurerelects to challengethedetermination.Inordertorequestreconsideration,allthefollowingcriteriamustbemet:

  • Therequest must bereceived bytheIIDwithin30daysof thedate on the de-listingletter;
  • Therequest must bein letterformat and signedbyanofficer oftheInsurer;and,
  • Each of the de-listing letter issues must be addressed with detailed explanations andsupportingdocumentation.

The IIDwillreview the letterresponse andwill presentits evaluation to theWorking Group foritsrecommendation.TheWorking Group’srecommendationwillbepresentedat a regulator-only Appeal Committee meeting forconsideration.A representative of the Working Group and the de-listed insurer will be allowed to present. Following review and a determinationbytheAppeal Committee, the IID will be instructed to send to the Insurer a letter detailing approval or denial of the request.

IfanInsurerdoesnotsubmitareconsiderationletterwithin30daysofthedateonthede-listingletter,anyrequestforreconsiderationisconsideredwaivedandtheInsurerwillberequiredtosubmitanewapplicationalongwiththe appropriate fee and allrequiredsupportingdocumentation,tobereadmittedtotheQuarterlyListing.

VII.Communication

Allcommunicationandinformation,includingfinancialstatements,auditreports,trustfunddocuments,and othersupportingdocumentationmust besubmitted inEnglish.

VIII.Confidentiality

TheIIDwilltreatasconfidentialanynon-publicinformationsubmittedbyanInsurerandforwhichconfidentialtreatmentisclearlyrequested.TheIIDisnotawareofanystateorfederalstatutesthatprovideadditionalprotectionforinformationsubmittedtoit.BysubmittinginformationtotheIID,theInsureracknowledgesthattheIIDmayshareanysuchinformationwithanystateinsurancedepartmentaswellasotherNAICstaffmemberswhoparticipateinthereviewofapplications.Additionally,intheeventtheIIDorNAICisservedwithasubpoena,motion,order,orotherlegalprocessrequiringtheproductionofsuchinformationortestimonyrelatedthereto,theNAICwillmakebesteffortstoinformtheInsurerofsuchthird-partyrequestinordertoaffordtheInsureranopportunitytotakewhateveractionitdeemsappropriatetoprotecttheconfidentialityofitsinformation.TheInsureracknowledgestheNAICmaycomplywiththerequest and anyorder compellingcompliancewithsuchrequest.

IX.AmendmenttothePlan

TheWorkingGroupwillconsiderrelevantproposalssubmittedtoIIDformodificationstothePlan.AllproposalswillbeconsideredduringopenconferencecallsormeetingsoftheWorkingGroupthroughouttheyear.Theproposalmustbecompleteandconciseandincludeanyrelevantsupportingdocuments.ProposalsexposedandadoptedbytheWorkingGroupwouldbecomeeffectivefollowingadoptionbytheSurplusLines (C) Task Forceduring its next scheduledmeeting.Forcompletedetailsregardingtheamendmentprocess,refertotheWorkingGroup’swebpage.

[1]15U.S.C.§8204(2).

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