Revised California Reinsurance Regulations Allow California Domestics to Cede 100% of Business to Affiliates and Intercompany Pools

California’s reinsurance regulations (Cal. Code Regs. tit. 10, §§ 2303 – 2303.29) were amended effective the first of this year. The revisions included changes to update the regulations to comport with current law and current Department of Insurance practice. The revisions ranged from topics surrounding the provision of credit for reinsurance to eliminating concepts, such as a reference to “volume” insurers that no longer exist under California law.

One of the most notable revisions dealt with cessions by domestic insurers. Previously, a domestic insurer’s reinsurance agreement with a non-affiliate was deemed materially deficient unless 10% of direct written premium per line of business was retained. CDI interpreted the per line of business reference to mean per reinsurance agreement, and required the 10% retention per reinsurance agreement. The revised regulations allow for 100% cessions of direct written premium on prospective business from a California domestic to an affiliate or an intercompany pool without being conditioned on a 10% retrocession.