On December 15, 2022, at the Fall 2022 National Meeting of the US National Association of Insurance Commissioners (“NAIC”), the Property and Casualty (C) Committee adopted revisions to the International Insurers Department (“IID”) Plan of Operation, revising the standards for inclusion on the NAIC’s Quarterly Listing of Alien Insurers (“Quarterly Listing”). The Quarterly Listing is a list of certain non-US insurers and Lloyd’s syndicates that are eligible to write insurance on a surplus lines basis throughout the United States. The IID is the unit of the NAIC responsible for maintaining the Quarterly Listing. It reviews and makes recommendations to the Surplus Lines (C) Working Group regarding initial and renewal applications for inclusion on the Quarterly Listing.
The Quarterly Listing is published on January 1, April 1, July 1, and October 1 of each year. Complete applications for inclusion on the Quarterly Listing must be submitted to the IID at least 90 days in advance of one of those publication dates. In the event an insurer is approved for inclusion on the Quarterly Listing, the IID will issue an approval letter to the insurer a minimum of 10 calendar days before the listing date.
The key revisions to the IID Plan of Operation, which was last revised in 2019, were recommended by the NAIC’s Surplus Lines (C) Task Force, which oversees the work of the Surplus Lines (C) Working Group.
The revised IID Plan of Operation changes certain core requirments with respect to applications for inclusion on the Quarterly Listing:
- Applicants for inclusion on the Quarterly Listing must now have minimum shareholders’ equity of $50 million (increased from the prior minimum of $45 million). In addition, applicants may now be subject to a shareholders’ equity requirement above $50 million if the IID determines that, based on the risk profile of the insurer, the $50 million requirement is inadequate. The revisions also authorize the IID to require ongoing reporting with respect to the insurer’s shareholders’ equity (e.g., monthly and/or quarterly reporting), although the revised IID Plan of Operation does not further specify the format or content of these ongoing reports.
- The revisions to the IID Plan of Operation clarify that the trust fund that applicant insurers are required to establish for the protection of their US policyholders must consist of “cash, securities or an acceptable evergreen letter of credit, or a combination [of the foregoing] at an appropriate level” and that credit for the assets deposited in the trust will be allowed only for (i) marketable securities traded on a regulated US exchange; (ii) securities assigned ratings by the NAIC’s Securities Valuation Office List of Investment Securities, as defined in the Purposes and Procedures Manual of the NAIC Investment Analysis Office; and (iii) securities of substantially similar character to the foregoing that are eligible investments for the capital and surplus reserves of admitted insurers writing like kinds of insurance in the state where the trust is principally administered.
- The minimum amount of the US trust fund will continue to be established under a sliding scale based on the amount of an insurer’s US surplus lines liabilities, up to a maximum of $250 million. However, the revisions to the IID Plan of Operation have increased the minimum amount of the trust fund from $5.4 million to $6.5 million. The trustee of the trust fund will now be required to provide a trust balance report directly to the IID within 30 days after the end of each quarter. Based on the IID’s review of the trust balance report, any shortage must be remedied by the insurer within 15 days of notification by the IID to the insurer.
- Additionally, the revised IID Plan of Operation adds a definition of “control” of an insurer, which is “presumed to exist if any person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing 10% or more of the voting securities of [the insurer].” Insurers on the Quarterly Listing undergoing a change of control and/or merger must now provide the IID with notice of the change at least 30 days prior to the effective date of the transaction (an increase from the prior Plan of Operation’s requirement of 15 days’ prior notice). As with the prior version of the IID Plan of Operation, insurers must reapply for inclusion on the Quarterly Listing within 45 days following the effective date of the change of control and/or merger.
- Finally, the revised IID Plan of Operation contains a new section, Section VIII, which provides for the voluntary termination of an insurer’s inclusion on the Quarterly Listing. An insurer wishing to voluntarily terminate its inclusion on the Quarterly Listing may now do so by sending a letter to the IID requesting the insurer’s termination along with the effective date of termination. However, following termination, the insurer must continue to maintain compliance with certain trust requirements. This new section was added in response to requests for a more well-defined “off ramp” for insurers wishing to exit the Quarterly Listing.
Although not an exhaustive list, the above are some of the highlights of the revised IID Plan of Operation. In the event an insurer is looking for guidance for inclusion on the Quarterly Listing, or assistance with maintaining its eligibility, the insurer should consult the revised IID Plan of Operation.1
To view additional updates from the US NAIC Fall 2022 National Meeting, visit our meeting highlights page.
1 The revised IID Plan of Operation is available in the Surplus Lines (C) Task Force meeting materials, pages 10-21.