1. (1) Requirements. Subject to the exemptions in s. Ins 52.21 and sub. (2), credit for reinsurance shall be allowed with respect to ceded liabilities pertaining to covered policies pursuant to ss. Ins 52.02 or 52.04 if, and only if, in addition to all other requirements imposed by law or regulation, the following requirements are met on a treaty-by-treaty basis:

   1. (a) The ceding insurer’s statutory policy reserves with respect to the covered policies are established in full and in accordance with the applicable requirements of s. 623.06, Stats., and related regulations and actuarial guidelines, and credit claimed for any reinsurance treaty subject to this regulation does not exceed the proportionate share of those reserves ceded under the contract, and
   2. (b) The ceding insurer determines the required level of primary security with respect to each reinsurance treaty subject to this regulation and provides support for its calculation as determined to be acceptable to the commissioner; and
   3. (c) Funds consisting of primary security, in an amount at least equal to the required level of primary security, are held by or on behalf of the ceding insurer, as security under the reinsurance treaty within the meaning of s. Ins 52.04, on a funds withheld, trust, or modified coinsurance basis; and
   4. (d) Funds consisting of other security, in an amount at least equal to any portion of the statutory reserves as to which primary security is not held pursuant to par. (c) are held by or on behalf of the ceding insurer as security under the reinsurance treaty within the meaning of s. Ins 52.04; and

   5. (e) Any trust used to satisfy the requirements of this section shall comply with all of the conditions and qualifications of ss. Ins 52.04 and 52.05, except that:

      1. 1. Funds consisting of primary security or other security held in trust, shall for the purposes identified in s. Ins 52.23 (2), be valued according to the valuation rules set forth in s. Ins 52.23 (2), as applicable; and
      2. 2. There are no affiliate investment limitations with respect to any security held in such trust if such security is not needed to satisfy the requirements of par. (c); and
      3. 3. The reinsurance treaty must prohibit withdrawals or substitutions of trust assets that would leave the fair market value of the primary security within the trust, when aggregated with primary security outside the trust that is held by or on behalf of the ceding insurer in the manner required by par. (c), below 102% of the level required by par. (c) at the time of the withdrawal or substitution; and
      4. 4. The determination of reserve credit under s. Ins 52.05 (2), shall be determined according to the valuation rules set forth in s. Ins 52.23 (2), as applicable; and
   6. (f) The reinsurance treaty has been approved by the commissioner.

2. (2) Requirements at inception date and on an on-going basis: remediation.

   1. (a) The requirements of sub. (1) must be satisfied as of the date that risks under covered policies are ceded, if such date is on or after June 1, 2022, and on an ongoing basis thereafter. Under no circumstances shall a ceding insurer take or consent to any action or series of actions that would result in a deficiency under sub. (1) (c) or (d) with respect to any reinsurance treaty under which covered policies have been ceded, and in the event that a ceding insurer becomes aware at any time that such a deficiency exists, it shall use its best efforts to arrange for the deficiency to be eliminated as expeditiously as possible.

   2. (b) Prior to the due date of each quarterly or annual statement, each life insurance company that has ceded reinsurance within the scope of s. Ins 52.20 (2) shall perform an analysis, on a treaty-by-treaty basis, to determine, as to each reinsurance treaty under which covered policies have been ceded, whether as of the end of the immediately preceding calendar quarter, the valuation date, the requirements of sub. (1) (c) and (d) were satisfied. The ceding insurer shall establish a liability equal to the excess of the credit for reinsurance taken over the amount of primary security actually held pursuant to sub. (1) (c), unless either of the following are met:

      1. 1. The requirements of sub. (1) (c) and (d) were fully satisfied as of the valuation date as to such reinsurance treaty; or
      2. 2. Any deficiency has been eliminated before the due date of the quarterly or annual statement to which the valuation date relates through the addition of primary security and/or other security, as the case may be, in such amount and in such form as would have caused the requirements of sub. (1) (c) and (d) to be fully satisfied as of the valuation date.
   3. (c) Nothing in par. (b) shall be construed to allow a ceding company to maintain any deficiency under sub. (1) (c) or (d) for any period of time longer than is reasonably necessary to eliminate it.

History

History: CR 21-066: cr. Register May 2022 No. 797, eff. 6-1-22.