HAR §16-17-14. Reinsurance

(a) Reinsurance under this section shall be effected through a written agreement of reinsurance setting forth the terms, provisions, and conditions governing the reinsurance. (b) A risk retention captive: (1) Shall qualify for credit for reinsurance on risks ceded to a reinsurer if the reinsurer is in compliance with chapter 431, article 4A of the Hawaii Revised Statutes; or (2) May qualify for credit for reinsurance on risks ceded to a reinsurer, provided the reinsurer meets the reinsurance guidelines for risk retention captives pursuant to section 16-17-14.1. (c) A captive taking credit for reinsurance pursuant to this section shall provide copies of all reinsurance binders, slips, treaties, or agreements to the commissioner for the commissioner's review and approval. [Eff 5/13/91; am and comp 3/12/01; am and comp 08/18/16; am and comp 08/17/19] (Auth: HRS §§431:19-114, 431:19-115) (Imp: HRS §431:19-111) §16-17-14.1 Reinsurance guidelines for risk retention captives. (a) A risk retention captive may qualify for credit for reinsurance on risks ceded to a reinsurer if: (1) The reinsurer maintains an A- or higher A.M. Best rating or other comparable rating from a nationally recognized statistical rating organization, the reinsurer maintains a minimum policyholder surplus in an amount acceptable to the commissioner based upon a review of the reinsurer’s most recent audited financial statements, and the reinsurer is licensed and domiciled in a §16-17-14.1 17-11 jurisdiction acceptable to the commissioner; or (2) The reinsurer satisfies all of the following requirements and any other requirements deemed necessary by the commissioner: (A) The risk retention captive or its captive manager shall file annually, on or before June 30, the reinsurer’s audited financial statements, which the commissioner shall analyze to assess the appropriateness of the reserve credit or the initial and continued financial condition of the reinsurer; (B) The reinsurer shall demonstrate to the satisfaction of the commissioner that it maintains a ratio of net written premium, wherever written, to surplus and capital of not more than three to one; (C) If the reinsurer is an affiliate of the risk retention captive, the reinsurer shall not write third-party business without prior written approval from the commissioner; (D) The reinsurer shall not use cell arrangements without prior written approval from the commissioner; (E) The reinsurer shall be licensed and domiciled in a jurisdiction acceptable to the commissioner; and (F) The reinsurer shall submit to the examination authority of the commissioner. For purposes of this paragraph, a reinsurer is affiliated with a risk retention captive if more than fifty per cent of the equity interests in the reinsurer are owned, directly or indirectly, by one or more members of the risk retention captive. (b) A risk retention captive using these reinsurance guidelines shall not receive credit for reinsurance if all of its policies are ceded through: §16-17-14.1 17-12 (1) One hundred per cent reinsurance arrangements; or (2) A lesser percentage approved by the commissioner, and the risk retention captive exceeds the approved percentage. While no credit for reinsurance shall be allowed for the amount in excess of the approved percentage, the risk retention captive may qualify for credit for reinsurance for the amount within the approved percentage. (c) The commissioner shall either require a reinsurer not domiciled in the United States to include language in the reinsurance agreement stating that in the event of the reinsurer’s failure to perform its obligations under the terms of its reinsurance agreement, the reinsurer shall submit to the jurisdiction of any court of competent jurisdiction in the United States or shall require the reinsurer to comply with subsection (d). (d) For credit for reinsurance and solvency regulatory purposes, the commissioner may require an approved funds-held agreement, letter of credit, trust, or other acceptable collateral based upon unearned premium, loss and loss adjustment expense reserves, and incurred but not reported reserves. (e) Upon application, the commissioner may waive either of the reinsurance requirements in subsection (a)(2)(B) or (a)(2)(F) if the risk retention captive or reinsurer can demonstrate to the commissioner that the reinsurer is sufficiently capitalized based upon: (1) An annual review of the reinsurer’s most recent audited financial statements; (2) The reinsurer being licensed and domiciled in a jurisdiction satisfactory to the commissioner; and (3) The proposed reinsurance agreement adequately protecting the risk retention captive and its policyholders. Any waiver shall be included in the plan of operation or any of its subsequent revisions or amendments, pursuant to 15 U.S.C. section 3902(d)(1). The plan §16-17-14.1 17-13 shall be submitted by the risk retention captive to the commissioner of its state of domicile and each state in which the risk retention captive intends to do business or is currently registered. Any waiver of a requirement in subsection (a)(2) shall constitute a change in the risk retention captive’s plan of operation in each of those states. (f) Upon application, the commissioner may waive the requirement in subsection (c) that a reinsurance arrangement must satisfy either subsection (c) or (d) if the risk retention captive or reinsurer can demonstrate to the commissioner that the reinsurer is sufficiently capitalized, based upon: (1) An annual review of the reinsurer's most recent audited financial statements; (2) The reinsurer being licensed and domiciled in a jurisdiction satisfactory to commissioner; and (3) The proposed reinsurance agreement adequately protecting the risk retention captive and its policyholders. Any waiver shall be disclosed in Note 1 of the risk retention captive’s annual statutory financial statement. (g) Each risk retention captive or captive manager of a risk retention captive shall assess the reinsurance programs of the risk retention captives under their management, and within sixty days of the effective date of this section, shall submit a written report to the commissioner indicating whether the risk retention captives are in compliance with these guidelines. All risk retention captives that fail to submit the report in a timely manner shall be examined at the risk retention captive’s expense to determine compliance with this section. (h) This section shall become effective when this chapter becomes effective and shall apply prospectively to risk retention captives. Credit for reinsurance may be granted for a risk retention captive's reinsurers in place as of January 1, 2011, without meeting the requirements of this section. The requirements of this section shall be used for new §16-17-14.1 17-14 reinsurers not in place as of January 1, 2011, with which business is placed after January 1, 2011. [Eff and comp 08/18/16; am and comp 08/17/19] (Auth:HRS §§431:19-114, 431:19-115) (Imp: HRS §431:19-111) §16-17-15 Business plan or plan of operation amendments; changes in ownership, governing body and officers. (a) The captive shall provide written notice and obtain prior approval from the commissioner for any change in ownership or material change to the captive's business plan or plan of operation that was filed with the commissioner upon application or as otherwise required by statute. (b) The captive shall provide written notice to the commissioner for any nonmaterial changes to the captive's business plan or plan of operation or as otherwise required by statute. (c) The captive shall provide written notice to the commissioner within thirty days after any change to its governing body or its officers, including submission of the completed biographical affidavit of any new member of the captive's governing body or officer. The captive shall obtain prior approval from the commissioner for any new appointment who does not already have a biographical affidavit on file with the commissioner. [Eff 5/13/91; am and comp 3/12/01; am and comp 08/18/16; am and comp 08/17/19] (Auth: HRS §§431:19-114, 431:19-115) (Imp: HRS §§431:19-106, 431:19-109, 431:19-115) §16-17-16 Suspension or revocation of license; fines. (a) The commissioner may by order fine, suspend or revoke the license of a captive or any combination of these actions: (1) For any reason provided in section 431:19-109, Hawaii Revised Statutes; or (2) Pursuant to the captive’s request. §16-17-17 17-15 (b) In case of suspension or revocation, the commissioner shall advise the captive of procedures and requirements for ongoing operations and winding up the captive’s business. [Eff 5/13/91; am and comp 3/12/01; am and comp 08/18/16; am and comp 08/17/19] (Auth: HRS §§431:19-114, 431:19-115) (Imp: HRS §§431:19-109, 431:19-115)