Chapter 9: KINDS OF INSURANCE; LIMITS OF RISK; REINSURANCE
Subchapter 3: REINSURANCE
§731-B. Credit for reinsurance
1. Credit for reinsurance is allowed a domestic ceding insurer as either an asset or a deduction from liability on account of reinsurance ceded only when the reinsurance is ceded to a solvent assuming insurer that:
A. Is licensed to transact insurance or reinsurance in this State, provided the assuming insurer maintains surplus as regards policyholders in an amount not less than the sum of paid-in capital stock, if any, and surplus as otherwise required for a certificate of authority for the kinds and amount of insurance and assumed reinsurance the insurer has in force net of any applicable ceded reinsurance. If the assuming insurer is licensed as a special purpose reinsurance vehicle pursuant to section 782 and maintains capital and surplus in accordance with the requirements of section 787, credit for reinsurance under a special purpose reinsurance vehicle contract, as defined in section 781, subsection 15, is allowed only to the extent that:
(1) The fair value of the assets held by or for the benefit of the ceding insurer equals or exceeds the obligations due and payable to the ceding insurer by the special purpose reinsurance vehicle under the special purpose reinsurance vehicle contract;
(2) The assets are held in accordance with the requirements in subchapter 6;
(3) The assets are administered in the manner and pursuant to arrangements under subchapter 6;
(4) The assets are held or invested in one or more of the forms allowed in section 795; and
(5) The contract complies with all other relevant requirements of subchapter 6; [2007, c. 386, §1 (AMD).]
B. Is domiciled and licensed in a state that employs standards regarding credit for reinsurance substantially similar to those applicable under this section, if the insurer:
(1) Submits to the authority of this State to examine its books and records; and
(2) Except where reinsurance is ceded and assumed pursuant to pooling arrangements among insurers in the same holding company system, maintains a surplus regarding policyholders in an amount not less than $20,000,000; [1991, c. 828, §16 (AMD).]
B-1. Is accredited as a reinsurer in this State, in accordance with the following standards.
(1) To apply for accreditation, a reinsurer shall file with the superintendent a written application on a form prescribed by the superintendent, accompanied by the fee prescribed in section 601, subsection 26 and an agreement to submit to the jurisdiction of the courts of this State and to the authority of the superintendent to examine the reinsurer's books and records.
(2) An accredited reinsurer must be licensed to transact insurance or reinsurance in at least one state, or in the case of a United States branch of an alien reinsurer, that reinsurer must be entered through and licensed to transact insurance or reinsurance in at least one state.
(3) An accredited reinsurer shall file with the superintendent, as part of its application and annually thereafter, a copy of its annual statement filed with the insurance department of its state of domicile or United States port of entry and a copy of its most recent audited financial statement.
(4) A reinsurer applying for accreditation that maintains a surplus as regards to policyholders in an amount not less than $20,000,000 is deemed to be accredited if the reinsurer's application is not denied by the superintendent within 90 days after submission of the application. The superintendent has the discretion to grant accreditation to an applicant with a surplus less than $20,000,000 subject to such terms and conditions as the superintendent determines to be necessary and appropriate for the protection of domestic ceding insurers and their policyholders.
The superintendent may deny, suspend, revoke or place restrictions upon a reinsurer's accreditation, after notice and opportunity for hearing, for failure to comply with the requirements of this paragraph or for any grounds that would warrant similar action against the certificate of authority of an authorized insurer. [2001, c. 47, §2 (NEW).]
C. Maintains a trust fund in a qualified United States financial institution for the payment of the valid claims of its United States ceding insurers, their assigns and successors in interest.
(1) The assuming insurer shall report annually to the superintendent information substantially the same as that required to be reported on the National Association of Insurance Commissioners Annual Statement form by licensed insurers to enable the superintendent to determine the sufficiency of the trust fund.
(2) In the case of a single assuming insurer, the trust must consist of a trusteed account representing the assuming insurer's liabilities attributable to reinsurance ceded by United States ceding insurers and, in addition, include a trusteed surplus of at least $20,000,000.
(3-A) A group including incorporated and individual unincorporated underwriters may secure its obligations with funds held in trust in compliance with the following standards.
(a) For reinsurance ceded under reinsurance agreements with an inception, amendment or renewal date on or after August 1, 1995, the trust must consist of a trusteed account in an amount at least equal to the group's several liabilities attributable to reinsurance ceded by United States domiciled ceding insurers to any member of the group.
(b) Notwithstanding the other provisions of this section, for reinsurance ceded under reinsurance agreements with an inception date on or before July 31, 1995 and not amended or renewed after that date, the trust must consist of a trusteed account in an amount not less than the group's several insurance and reinsurance liabilities attributable to business written in the United States.
(c) In addition, the group shall maintain a trusteed surplus of at least $100,000,000 held jointly for the benefit of the United States domiciled ceding insurers of any member of the group for all years of account.
An incorporated member of the group may not be engaged in any business other than underwriting as a member of the group and is subject to the same level of solvency regulation and control by the group's domiciliary regulator as are the unincorporated members. Within 90 days after its financial statements are due to be filed with the group's domiciliary regulator, the group shall provide to the superintendent an annual certification by the group's domiciliary regulator of the solvency of each underwriter member of the group or, if a certification is unavailable, financial statements prepared by independent public accountants.
(4-A) The superintendent in rules adopted pursuant to subsection 7 may establish alternative criteria for approval of a reinsurance trust if the superintendent determines that the criteria provide adequate protection to policyholders of United States ceding insurers and are in substantial conformance with standards approved by the National Association of Insurance Commissioners.
(5) The trust must be established in a form approved by the superintendent and consistent with any rules adopted by the superintendent pursuant to this section. The form of the trust and any amendments to the trust must also have been approved by the insurance regulatory official of the state where the trust is domiciled or of another state that, pursuant to the terms of the trust instrument, has accepted principal regulatory oversight of the trust. The trust instrument must provide that contested claims are valid and enforceable upon the final order of any court of competent jurisdiction in the United States. The trust must vest legal title to its assets in the trustees of the trust for the benefit of the assuming insurer's United States ceding insurers, their assigns and successors in interest. The trust and the assuming insurer are subject to examination, as determined by the superintendent, at the assuming insurer's expense. The trust must remain in effect for as long as the assuming insurer has outstanding obligations due under the reinsurance agreements subject to the trust.
(6) The trustees of the trust shall report to the superintendent in writing by February 28th of each year, setting forth the balance of the trust and listing the trust's investments at the end of the preceding year and certifying the date of termination of the trust, if so planned, or certifying that the trust does not expire before December 31st of the current year.
(7) The corpus of the trust is to be valued as any other admitted asset or assets; [2001, c. 47, §3 (AMD).]
D. Does not meet the requirements of paragraph A, B, B-1 or C, but only with respect to risks located in a jurisdiction where that reinsurance is required by law. The superintendent for good cause after notice and opportunity for hearing may disallow or reduce the credit otherwise permitted under this paragraph. [2001, c. 47, §4 (AMD).]
[ 2007, c. 386, §1 (AMD) .]
2. The credit permitted by subsection 1 is not to be allowed unless the assuming insurer agrees in the reinsurance agreements:
A. That, if the assuming insurer fails to perform its obligations under the terms of the reinsurance agreement, the assuming insurer, at the request of the ceding insurer:
(1) Will submit to the jurisdiction of any court of competent jurisdiction in any state of the United States;
(2) Will comply with all requirements necessary to give the court jurisdiction; and
(3) Will abide by the final decision of the court or of any Appellate Court in the event of an appeal; and [1989, c. 846, Pt. E, §2 (NEW); 1989, c. 846, Pt. E, §4 (AFF).]
B. To designate the superintendent or an attorney as its attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the ceding company, as required in section 421. [1989, c. 846, Pt. E, §2 (NEW); 1989, c. 846, Pt. E, §4 (AFF).]
This provision is not intended to conflict with or override the obligation of the parties to a reinsurance agreement to arbitrate their disputes, if such an obligation is created in the agreement.
[ 1989, c. 846, Pt. E, §2 (NEW); 1989, c. 846, Pt. E, §4 (AFF) .]
2-A. Credit for reinsurance may not be allowed on the basis of a trust maintained pursuant to subsection 1, paragraph C unless the assuming insurer agrees in the trust agreements to the following conditions.
A. Notwithstanding any other provisions in the trust instrument, if the trust fund contains an amount less than the amount required by this section, or if the grantor of the trust has been declared insolvent or placed into receivership, rehabilitation, liquidation or similar proceedings under the laws of its state or country of domicile, the trustee shall comply with an order of the commissioner with regulatory oversight over the trust or with an order of a court of competent jurisdiction directing the trustee to transfer to the commissioner with regulatory oversight all of the assets of the trust fund. [2001, c. 47, §5 (NEW).]
B. The assets must be distributed by and claims must be filed with and valued by the commissioner with regulatory oversight in accordance with the laws of the state in which the trust is domiciled that are applicable to the liquidation of domestic insurance companies. [2001, c. 47, §5 (NEW).]
C. If the commissioner with regulatory oversight determines that the assets of the trust fund or any part of the assets of the trust fund are not necessary to satisfy the claims of the United States ceding insurers of the grantor of the trust, the assets or part of the assets of the trust fund must be returned by the commissioner with regulatory oversight to the trustee for distribution in accordance with the trust agreement. [2001, c. 47, §5 (NEW).]
D. The grantor shall waive any right otherwise available to it under United States law that is inconsistent with this subsection. [2001, c. 47, §5 (NEW).]
[ 2001, c. 47, §5 (NEW) .]
3. An asset or a reduction from liability for the reinsurance ceded to an assuming insurer not meeting the requirements of subsection 1 is allowed in an amount not exceeding the liabilities carried by the ceding insurer. The reduction must equal the value of funds held by or on behalf of the ceding insurer, including funds held in trust for the ceding insurer, under a reinsurance contract with such assuming insurer as security for the payment of obligations under the contract, if such security is held in the United States subject to withdrawal solely by, and under the exclusive control of, the ceding insurer or, in the case of a trust, held in a qualified United States financial institution. This security may be in the form of:
A. Cash; [1989, c. 846, Pt. E, §2 (NEW); 1989, c. 846, Pt. E, §4 (AFF).]
B. Securities listed by the Securities Valuation Office of the National Association of Insurance Commissioners and qualifying as admitted assets; or [1989, c. 846, Pt. E, §2 (NEW); 1989, c. 846, Pt. E, §4 (AFF).]
C. Clean, irrevocable, unconditional letters of credit, issued or confirmed by a qualified United States financial institution no later than December 31st of the year for which filing is being made and in the possession of the ceding company on or before the filing date of its annual statement.
(1) A letter of credit from an issuer determined to be acceptable as of the date of issuance or the date of confirmation of the letter, notwithstanding the issuing or confirming institution's subsequent failure to meet applicable standards of issuer acceptability, continues to be acceptable as security until its expiration, extension, renewal, modification or amendment, whichever first occurs. The ceding insurer shall replace a nonqualifying letter of credit at its earliest opportunity.
(2) The letter of credit must indicate that it is not subject to any condition or qualification outside the letter of credit, and that the beneficiary need only draw a sight draft under the letter and present the letter to obtain funds and that no other document need be presented. [1993, c. 313, §18 (AMD).]
[ 2001, c. 47, §6 (AMD) .]
4. For purposes of this section, a "qualified United States financial institution" means an institution that:
A. Is organized or, in the case of a United States branch or agency office of a foreign banking organization, is licensed under the laws of the United States or any state of the United States; [1991, c. 828, §17 (AMD).]
B. Is regulated, supervised and examined by federal or state authorities having regulatory authority over banks and trust companies; and [1991, c. 828, §17 (AMD).]
C. Has been determined by the superintendent or the Securities Valuation Office of the National Association of Insurance Commissioners to meet standards of financial condition and standing that are considered necessary and appropriate to regulate the quality of financial institutions whose letters of credit will be acceptable to the superintendent. [1991, c. 828, §17 (NEW).]
[ 1991, c. 828, §17 (AMD) .]
4-A. "Qualified United States financial institution" means for purposes of those provisions of this section specifying those institutions that are eligible to act as a fiduciary of a trust an institution that:
A. Is organized or in the case of a United States branch or agency office of a foreign banking organization licensed under the laws of the United States or any state of the United States and has been granted authority to operate with fiduciary powers; and [1991, c. 828, §18 (NEW).]
B. Is regulated, supervised and examined by federal or state authorities having regulatory authority over banks and trust companies. [RR 1993, c. 1, §56 (COR).]
[ RR 1993, c. 1, §56 (COR) .]
5. Credit is allowed as an asset or deduction from liability to any ceding insurer only for reinsurance ceded to an assuming insurer qualified under this section, except that no credit is allowed, unless the reinsurance contract provides, in substance, that in the event of the insolvency of the ceding insurer, the reinsurance is payable under a contract or contracts reinsured by the assuming insurer on the basis of reported claims allowed by the court, without diminution because of the insolvency of the ceding insurer. The payments must be made directly to the ceding insurer or to the ceding insurer's domiciliary receiver unless the contract or other written agreement specifically provides another payee in the event of the insolvency of the ceding insurer or unless the assuming insurer, with the consent of the direct insured or insureds, has assumed the policy obligations of the ceding insurer as direct obligations of the assuming insurer to the payees under the reinsured policies and in substitution for the obligations of the ceding insurer to those payees.
The reinsurance agreement may condition the payments upon written notice by the ceding insurer's domiciliary receiver to the assuming insurer of the pendency of a claim on the contract reinsured within a reasonable time after the claim is filed in the proceeding where the claim is to be adjudicated. During the pendency of such a claim, any assuming insurer may investigate the claim and interpose, at the assuming insurer's own expense, any defenses in the proceeding that the assuming insurer determines available to the ceding insurer or to the ceding insurer's receiver. The expenses may be filed as a claim against the insolvent ceding insurer to the extent of its proportionate share of the benefit that may accrue to the ceding insurer solely as a result of the defense undertaken by the assuming insurer. When 2 or more assuming insurers are involved in the same claim and a majority in interest elect to interpose a defense to the claim, the expense must be apportioned in accordance with the terms of the reinsurance agreement as though the expense had been incurred by the ceding insurer.
[ 2001, c. 47, §7 (AMD) .]
6.
[ 1999, c. 113, §21 (RP) .]
7. The superintendent may adopt rules, subject to Title 5, chapter 375, to implement this section. Rules adopted under this section are routine technical rules pursuant to Title 5, chapter 375, subchapter II-A.
[ 2001, c. 47, §8 (AMD) .]
SECTION HISTORY
1989, c. 846, §§E2,4 (NEW). 1991, c. 38, (AMD). 1991, c. 828, §§16-18 (AMD). RR 1993, c. 1, §56 (COR). 1993, c. 313, §§17,18 (AMD). 1993, c. 666, §C1 (AMD). 1999, c. 113, §§19-21 (AMD). 2001, c. 47, §§2-8 (AMD). 2003, c. 249, §1 (AMD). 2007, c. 386, §1 (AMD).
Chapter 9: KINDS OF INSURANCE; LIMITS OF RISK; REINSURANCE
Subchapter 3: REINSURANCE
§731-B. Credit for reinsurance
1. Credit for reinsurance is allowed a domestic ceding insurer as either an asset or a deduction from liability on account of reinsurance ceded only when the reinsurance is ceded to a solvent assuming insurer that:
A. Is licensed to transact insurance or reinsurance in this State, provided the assuming insurer maintains surplus as regards policyholders in an amount not less than the sum of paid-in capital stock, if any, and surplus as otherwise required for a certificate of authority for the kinds and amount of insurance and assumed reinsurance the insurer has in force net of any applicable ceded reinsurance. If the assuming insurer is licensed as a special purpose reinsurance vehicle pursuant to section 782 and maintains capital and surplus in accordance with the requirements of section 787, credit for reinsurance under a special purpose reinsurance vehicle contract, as defined in section 781, subsection 15, is allowed only to the extent that:
(1) The fair value of the assets held by or for the benefit of the ceding insurer equals or exceeds the obligations due and payable to the ceding insurer by the special purpose reinsurance vehicle under the special purpose reinsurance vehicle contract;
(2) The assets are held in accordance with the requirements in subchapter 6;
(3) The assets are administered in the manner and pursuant to arrangements under subchapter 6;
(4) The assets are held or invested in one or more of the forms allowed in section 795; and
(5) The contract complies with all other relevant requirements of subchapter 6; [2007, c. 386, §1 (AMD).]
B. Is domiciled and licensed in a state that employs standards regarding credit for reinsurance substantially similar to those applicable under this section, if the insurer:
(1) Submits to the authority of this State to examine its books and records; and
(2) Except where reinsurance is ceded and assumed pursuant to pooling arrangements among insurers in the same holding company system, maintains a surplus regarding policyholders in an amount not less than $20,000,000; [1991, c. 828, §16 (AMD).]
B-1. Is accredited as a reinsurer in this State, in accordance with the following standards.
(1) To apply for accreditation, a reinsurer shall file with the superintendent a written application on a form prescribed by the superintendent, accompanied by the fee prescribed in section 601, subsection 26 and an agreement to submit to the jurisdiction of the courts of this State and to the authority of the superintendent to examine the reinsurer's books and records.
(2) An accredited reinsurer must be licensed to transact insurance or reinsurance in at least one state, or in the case of a United States branch of an alien reinsurer, that reinsurer must be entered through and licensed to transact insurance or reinsurance in at least one state.
(3) An accredited reinsurer shall file with the superintendent, as part of its application and annually thereafter, a copy of its annual statement filed with the insurance department of its state of domicile or United States port of entry and a copy of its most recent audited financial statement.
(4) A reinsurer applying for accreditation that maintains a surplus as regards to policyholders in an amount not less than $20,000,000 is deemed to be accredited if the reinsurer's application is not denied by the superintendent within 90 days after submission of the application. The superintendent has the discretion to grant accreditation to an applicant with a surplus less than $20,000,000 subject to such terms and conditions as the superintendent determines to be necessary and appropriate for the protection of domestic ceding insurers and their policyholders.
The superintendent may deny, suspend, revoke or place restrictions upon a reinsurer's accreditation, after notice and opportunity for hearing, for failure to comply with the requirements of this paragraph or for any grounds that would warrant similar action against the certificate of authority of an authorized insurer. [2001, c. 47, §2 (NEW).]
C. Maintains a trust fund in a qualified United States financial institution for the payment of the valid claims of its United States ceding insurers, their assigns and successors in interest.
(1) The assuming insurer shall report annually to the superintendent information substantially the same as that required to be reported on the National Association of Insurance Commissioners Annual Statement form by licensed insurers to enable the superintendent to determine the sufficiency of the trust fund.
(2) In the case of a single assuming insurer, the trust must consist of a trusteed account representing the assuming insurer's liabilities attributable to reinsurance ceded by United States ceding insurers and, in addition, include a trusteed surplus of at least $20,000,000.
(3-A) A group including incorporated and individual unincorporated underwriters may secure its obligations with funds held in trust in compliance with the following standards.
(a) For reinsurance ceded under reinsurance agreements with an inception, amendment or renewal date on or after August 1, 1995, the trust must consist of a trusteed account in an amount at least equal to the group's several liabilities attributable to reinsurance ceded by United States domiciled ceding insurers to any member of the group.
(b) Notwithstanding the other provisions of this section, for reinsurance ceded under reinsurance agreements with an inception date on or before July 31, 1995 and not amended or renewed after that date, the trust must consist of a trusteed account in an amount not less than the group's several insurance and reinsurance liabilities attributable to business written in the United States.
(c) In addition, the group shall maintain a trusteed surplus of at least $100,000,000 held jointly for the benefit of the United States domiciled ceding insurers of any member of the group for all years of account.
An incorporated member of the group may not be engaged in any business other than underwriting as a member of the group and is subject to the same level of solvency regulation and control by the group's domiciliary regulator as are the unincorporated members. Within 90 days after its financial statements are due to be filed with the group's domiciliary regulator, the group shall provide to the superintendent an annual certification by the group's domiciliary regulator of the solvency of each underwriter member of the group or, if a certification is unavailable, financial statements prepared by independent public accountants.
(4-A) The superintendent in rules adopted pursuant to subsection 7 may establish alternative criteria for approval of a reinsurance trust if the superintendent determines that the criteria provide adequate protection to policyholders of United States ceding insurers and are in substantial conformance with standards approved by the National Association of Insurance Commissioners.
(5) The trust must be established in a form approved by the superintendent and consistent with any rules adopted by the superintendent pursuant to this section. The form of the trust and any amendments to the trust must also have been approved by the insurance regulatory official of the state where the trust is domiciled or of another state that, pursuant to the terms of the trust instrument, has accepted principal regulatory oversight of the trust. The trust instrument must provide that contested claims are valid and enforceable upon the final order of any court of competent jurisdiction in the United States. The trust must vest legal title to its assets in the trustees of the trust for the benefit of the assuming insurer's United States ceding insurers, their assigns and successors in interest. The trust and the assuming insurer are subject to examination, as determined by the superintendent, at the assuming insurer's expense. The trust must remain in effect for as long as the assuming insurer has outstanding obligations due under the reinsurance agreements subject to the trust.
(6) The trustees of the trust shall report to the superintendent in writing by February 28th of each year, setting forth the balance of the trust and listing the trust's investments at the end of the preceding year and certifying the date of termination of the trust, if so planned, or certifying that the trust does not expire before December 31st of the current year.
(7) The corpus of the trust is to be valued as any other admitted asset or assets; [2001, c. 47, §3 (AMD).]
D. Does not meet the requirements of paragraph A, B, B-1 or C, but only with respect to risks located in a jurisdiction where that reinsurance is required by law. The superintendent for good cause after notice and opportunity for hearing may disallow or reduce the credit otherwise permitted under this paragraph. [2001, c. 47, §4 (AMD).]
[ 2007, c. 386, §1 (AMD) .]
2. The credit permitted by subsection 1 is not to be allowed unless the assuming insurer agrees in the reinsurance agreements:
A. That, if the assuming insurer fails to perform its obligations under the terms of the reinsurance agreement, the assuming insurer, at the request of the ceding insurer:
(1) Will submit to the jurisdiction of any court of competent jurisdiction in any state of the United States;
(2) Will comply with all requirements necessary to give the court jurisdiction; and
(3) Will abide by the final decision of the court or of any Appellate Court in the event of an appeal; and [1989, c. 846, Pt. E, §2 (NEW); 1989, c. 846, Pt. E, §4 (AFF).]
B. To designate the superintendent or an attorney as its attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the ceding company, as required in section 421. [1989, c. 846, Pt. E, §2 (NEW); 1989, c. 846, Pt. E, §4 (AFF).]
This provision is not intended to conflict with or override the obligation of the parties to a reinsurance agreement to arbitrate their disputes, if such an obligation is created in the agreement.
[ 1989, c. 846, Pt. E, §2 (NEW); 1989, c. 846, Pt. E, §4 (AFF) .]
2-A. Credit for reinsurance may not be allowed on the basis of a trust maintained pursuant to subsection 1, paragraph C unless the assuming insurer agrees in the trust agreements to the following conditions.
A. Notwithstanding any other provisions in the trust instrument, if the trust fund contains an amount less than the amount required by this section, or if the grantor of the trust has been declared insolvent or placed into receivership, rehabilitation, liquidation or similar proceedings under the laws of its state or country of domicile, the trustee shall comply with an order of the commissioner with regulatory oversight over the trust or with an order of a court of competent jurisdiction directing the trustee to transfer to the commissioner with regulatory oversight all of the assets of the trust fund. [2001, c. 47, §5 (NEW).]
B. The assets must be distributed by and claims must be filed with and valued by the commissioner with regulatory oversight in accordance with the laws of the state in which the trust is domiciled that are applicable to the liquidation of domestic insurance companies. [2001, c. 47, §5 (NEW).]
C. If the commissioner with regulatory oversight determines that the assets of the trust fund or any part of the assets of the trust fund are not necessary to satisfy the claims of the United States ceding insurers of the grantor of the trust, the assets or part of the assets of the trust fund must be returned by the commissioner with regulatory oversight to the trustee for distribution in accordance with the trust agreement. [2001, c. 47, §5 (NEW).]
D. The grantor shall waive any right otherwise available to it under United States law that is inconsistent with this subsection. [2001, c. 47, §5 (NEW).]
[ 2001, c. 47, §5 (NEW) .]
3. An asset or a reduction from liability for the reinsurance ceded to an assuming insurer not meeting the requirements of subsection 1 is allowed in an amount not exceeding the liabilities carried by the ceding insurer. The reduction must equal the value of funds held by or on behalf of the ceding insurer, including funds held in trust for the ceding insurer, under a reinsurance contract with such assuming insurer as security for the payment of obligations under the contract, if such security is held in the United States subject to withdrawal solely by, and under the exclusive control of, the ceding insurer or, in the case of a trust, held in a qualified United States financial institution. This security may be in the form of:
A. Cash; [1989, c. 846, Pt. E, §2 (NEW); 1989, c. 846, Pt. E, §4 (AFF).]
B. Securities listed by the Securities Valuation Office of the National Association of Insurance Commissioners and qualifying as admitted assets; or [1989, c. 846, Pt. E, §2 (NEW); 1989, c. 846, Pt. E, §4 (AFF).]
C. Clean, irrevocable, unconditional letters of credit, issued or confirmed by a qualified United States financial institution no later than December 31st of the year for which filing is being made and in the possession of the ceding company on or before the filing date of its annual statement.
(1) A letter of credit from an issuer determined to be acceptable as of the date of issuance or the date of confirmation of the letter, notwithstanding the issuing or confirming institution's subsequent failure to meet applicable standards of issuer acceptability, continues to be acceptable as security until its expiration, extension, renewal, modification or amendment, whichever first occurs. The ceding insurer shall replace a nonqualifying letter of credit at its earliest opportunity.
(2) The letter of credit must indicate that it is not subject to any condition or qualification outside the letter of credit, and that the beneficiary need only draw a sight draft under the letter and present the letter to obtain funds and that no other document need be presented. [1993, c. 313, §18 (AMD).]
[ 2001, c. 47, §6 (AMD) .]
4. For purposes of this section, a "qualified United States financial institution" means an institution that:
A. Is organized or, in the case of a United States branch or agency office of a foreign banking organization, is licensed under the laws of the United States or any state of the United States; [1991, c. 828, §17 (AMD).]
B. Is regulated, supervised and examined by federal or state authorities having regulatory authority over banks and trust companies; and [1991, c. 828, §17 (AMD).]
C. Has been determined by the superintendent or the Securities Valuation Office of the National Association of Insurance Commissioners to meet standards of financial condition and standing that are considered necessary and appropriate to regulate the quality of financial institutions whose letters of credit will be acceptable to the superintendent. [1991, c. 828, §17 (NEW).]
[ 1991, c. 828, §17 (AMD) .]
4-A. "Qualified United States financial institution" means for purposes of those provisions of this section specifying those institutions that are eligible to act as a fiduciary of a trust an institution that:
A. Is organized or in the case of a United States branch or agency office of a foreign banking organization licensed under the laws of the United States or any state of the United States and has been granted authority to operate with fiduciary powers; and [1991, c. 828, §18 (NEW).]
B. Is regulated, supervised and examined by federal or state authorities having regulatory authority over banks and trust companies. [RR 1993, c. 1, §56 (COR).]
[ RR 1993, c. 1, §56 (COR) .]
5. Credit is allowed as an asset or deduction from liability to any ceding insurer only for reinsurance ceded to an assuming insurer qualified under this section, except that no credit is allowed, unless the reinsurance contract provides, in substance, that in the event of the insolvency of the ceding insurer, the reinsurance is payable under a contract or contracts reinsured by the assuming insurer on the basis of reported claims allowed by the court, without diminution because of the insolvency of the ceding insurer. The payments must be made directly to the ceding insurer or to the ceding insurer's domiciliary receiver unless the contract or other written agreement specifically provides another payee in the event of the insolvency of the ceding insurer or unless the assuming insurer, with the consent of the direct insured or insureds, has assumed the policy obligations of the ceding insurer as direct obligations of the assuming insurer to the payees under the reinsured policies and in substitution for the obligations of the ceding insurer to those payees.
The reinsurance agreement may condition the payments upon written notice by the ceding insurer's domiciliary receiver to the assuming insurer of the pendency of a claim on the contract reinsured within a reasonable time after the claim is filed in the proceeding where the claim is to be adjudicated. During the pendency of such a claim, any assuming insurer may investigate the claim and interpose, at the assuming insurer's own expense, any defenses in the proceeding that the assuming insurer determines available to the ceding insurer or to the ceding insurer's receiver. The expenses may be filed as a claim against the insolvent ceding insurer to the extent of its proportionate share of the benefit that may accrue to the ceding insurer solely as a result of the defense undertaken by the assuming insurer. When 2 or more assuming insurers are involved in the same claim and a majority in interest elect to interpose a defense to the claim, the expense must be apportioned in accordance with the terms of the reinsurance agreement as though the expense had been incurred by the ceding insurer.
[ 2001, c. 47, §7 (AMD) .]
6.
[ 1999, c. 113, §21 (RP) .]
7. The superintendent may adopt rules, subject to Title 5, chapter 375, to implement this section. Rules adopted under this section are routine technical rules pursuant to Title 5, chapter 375, subchapter II-A.
[ 2001, c. 47, §8 (AMD) .]
SECTION HISTORY
1989, c. 846, §§E2,4 (NEW). 1991, c. 38, (AMD). 1991, c. 828, §§16-18 (AMD). RR 1993, c. 1, §56 (COR). 1993, c. 313, §§17,18 (AMD). 1993, c. 666, §C1 (AMD). 1999, c. 113, §§19-21 (AMD). 2001, c. 47, §§2-8 (AMD). 2003, c. 249, §1 (AMD). 2007, c. 386, §1 (AMD).
Chapter 9: KINDS OF INSURANCE; LIMITS OF RISK; REINSURANCE
Subchapter 3: REINSURANCE
§731-B. Credit for reinsurance
1. Credit for reinsurance is allowed a domestic ceding insurer as either an asset or a deduction from liability on account of reinsurance ceded only when the reinsurance is ceded to a solvent assuming insurer that:
A. Is licensed to transact insurance or reinsurance in this State, provided the assuming insurer maintains surplus as regards policyholders in an amount not less than the sum of paid-in capital stock, if any, and surplus as otherwise required for a certificate of authority for the kinds and amount of insurance and assumed reinsurance the insurer has in force net of any applicable ceded reinsurance. If the assuming insurer is licensed as a special purpose reinsurance vehicle pursuant to section 782 and maintains capital and surplus in accordance with the requirements of section 787, credit for reinsurance under a special purpose reinsurance vehicle contract, as defined in section 781, subsection 15, is allowed only to the extent that:
(1) The fair value of the assets held by or for the benefit of the ceding insurer equals or exceeds the obligations due and payable to the ceding insurer by the special purpose reinsurance vehicle under the special purpose reinsurance vehicle contract;
(2) The assets are held in accordance with the requirements in subchapter 6;
(3) The assets are administered in the manner and pursuant to arrangements under subchapter 6;
(4) The assets are held or invested in one or more of the forms allowed in section 795; and
(5) The contract complies with all other relevant requirements of subchapter 6; [2007, c. 386, §1 (AMD).]
B. Is domiciled and licensed in a state that employs standards regarding credit for reinsurance substantially similar to those applicable under this section, if the insurer:
(1) Submits to the authority of this State to examine its books and records; and
(2) Except where reinsurance is ceded and assumed pursuant to pooling arrangements among insurers in the same holding company system, maintains a surplus regarding policyholders in an amount not less than $20,000,000; [1991, c. 828, §16 (AMD).]
B-1. Is accredited as a reinsurer in this State, in accordance with the following standards.
(1) To apply for accreditation, a reinsurer shall file with the superintendent a written application on a form prescribed by the superintendent, accompanied by the fee prescribed in section 601, subsection 26 and an agreement to submit to the jurisdiction of the courts of this State and to the authority of the superintendent to examine the reinsurer's books and records.
(2) An accredited reinsurer must be licensed to transact insurance or reinsurance in at least one state, or in the case of a United States branch of an alien reinsurer, that reinsurer must be entered through and licensed to transact insurance or reinsurance in at least one state.
(3) An accredited reinsurer shall file with the superintendent, as part of its application and annually thereafter, a copy of its annual statement filed with the insurance department of its state of domicile or United States port of entry and a copy of its most recent audited financial statement.
(4) A reinsurer applying for accreditation that maintains a surplus as regards to policyholders in an amount not less than $20,000,000 is deemed to be accredited if the reinsurer's application is not denied by the superintendent within 90 days after submission of the application. The superintendent has the discretion to grant accreditation to an applicant with a surplus less than $20,000,000 subject to such terms and conditions as the superintendent determines to be necessary and appropriate for the protection of domestic ceding insurers and their policyholders.
The superintendent may deny, suspend, revoke or place restrictions upon a reinsurer's accreditation, after notice and opportunity for hearing, for failure to comply with the requirements of this paragraph or for any grounds that would warrant similar action against the certificate of authority of an authorized insurer. [2001, c. 47, §2 (NEW).]
C. Maintains a trust fund in a qualified United States financial institution for the payment of the valid claims of its United States ceding insurers, their assigns and successors in interest.
(1) The assuming insurer shall report annually to the superintendent information substantially the same as that required to be reported on the National Association of Insurance Commissioners Annual Statement form by licensed insurers to enable the superintendent to determine the sufficiency of the trust fund.
(2) In the case of a single assuming insurer, the trust must consist of a trusteed account representing the assuming insurer's liabilities attributable to reinsurance ceded by United States ceding insurers and, in addition, include a trusteed surplus of at least $20,000,000.
(3-A) A group including incorporated and individual unincorporated underwriters may secure its obligations with funds held in trust in compliance with the following standards.
(a) For reinsurance ceded under reinsurance agreements with an inception, amendment or renewal date on or after August 1, 1995, the trust must consist of a trusteed account in an amount at least equal to the group's several liabilities attributable to reinsurance ceded by United States domiciled ceding insurers to any member of the group.
(b) Notwithstanding the other provisions of this section, for reinsurance ceded under reinsurance agreements with an inception date on or before July 31, 1995 and not amended or renewed after that date, the trust must consist of a trusteed account in an amount not less than the group's several insurance and reinsurance liabilities attributable to business written in the United States.
(c) In addition, the group shall maintain a trusteed surplus of at least $100,000,000 held jointly for the benefit of the United States domiciled ceding insurers of any member of the group for all years of account.
An incorporated member of the group may not be engaged in any business other than underwriting as a member of the group and is subject to the same level of solvency regulation and control by the group's domiciliary regulator as are the unincorporated members. Within 90 days after its financial statements are due to be filed with the group's domiciliary regulator, the group shall provide to the superintendent an annual certification by the group's domiciliary regulator of the solvency of each underwriter member of the group or, if a certification is unavailable, financial statements prepared by independent public accountants.
(4-A) The superintendent in rules adopted pursuant to subsection 7 may establish alternative criteria for approval of a reinsurance trust if the superintendent determines that the criteria provide adequate protection to policyholders of United States ceding insurers and are in substantial conformance with standards approved by the National Association of Insurance Commissioners.
(5) The trust must be established in a form approved by the superintendent and consistent with any rules adopted by the superintendent pursuant to this section. The form of the trust and any amendments to the trust must also have been approved by the insurance regulatory official of the state where the trust is domiciled or of another state that, pursuant to the terms of the trust instrument, has accepted principal regulatory oversight of the trust. The trust instrument must provide that contested claims are valid and enforceable upon the final order of any court of competent jurisdiction in the United States. The trust must vest legal title to its assets in the trustees of the trust for the benefit of the assuming insurer's United States ceding insurers, their assigns and successors in interest. The trust and the assuming insurer are subject to examination, as determined by the superintendent, at the assuming insurer's expense. The trust must remain in effect for as long as the assuming insurer has outstanding obligations due under the reinsurance agreements subject to the trust.
(6) The trustees of the trust shall report to the superintendent in writing by February 28th of each year, setting forth the balance of the trust and listing the trust's investments at the end of the preceding year and certifying the date of termination of the trust, if so planned, or certifying that the trust does not expire before December 31st of the current year.
(7) The corpus of the trust is to be valued as any other admitted asset or assets; [2001, c. 47, §3 (AMD).]
D. Does not meet the requirements of paragraph A, B, B-1 or C, but only with respect to risks located in a jurisdiction where that reinsurance is required by law. The superintendent for good cause after notice and opportunity for hearing may disallow or reduce the credit otherwise permitted under this paragraph. [2001, c. 47, §4 (AMD).]
[ 2007, c. 386, §1 (AMD) .]
2. The credit permitted by subsection 1 is not to be allowed unless the assuming insurer agrees in the reinsurance agreements:
A. That, if the assuming insurer fails to perform its obligations under the terms of the reinsurance agreement, the assuming insurer, at the request of the ceding insurer:
(1) Will submit to the jurisdiction of any court of competent jurisdiction in any state of the United States;
(2) Will comply with all requirements necessary to give the court jurisdiction; and
(3) Will abide by the final decision of the court or of any Appellate Court in the event of an appeal; and [1989, c. 846, Pt. E, §2 (NEW); 1989, c. 846, Pt. E, §4 (AFF).]
B. To designate the superintendent or an attorney as its attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the ceding company, as required in section 421. [1989, c. 846, Pt. E, §2 (NEW); 1989, c. 846, Pt. E, §4 (AFF).]
This provision is not intended to conflict with or override the obligation of the parties to a reinsurance agreement to arbitrate their disputes, if such an obligation is created in the agreement.
[ 1989, c. 846, Pt. E, §2 (NEW); 1989, c. 846, Pt. E, §4 (AFF) .]
2-A. Credit for reinsurance may not be allowed on the basis of a trust maintained pursuant to subsection 1, paragraph C unless the assuming insurer agrees in the trust agreements to the following conditions.
A. Notwithstanding any other provisions in the trust instrument, if the trust fund contains an amount less than the amount required by this section, or if the grantor of the trust has been declared insolvent or placed into receivership, rehabilitation, liquidation or similar proceedings under the laws of its state or country of domicile, the trustee shall comply with an order of the commissioner with regulatory oversight over the trust or with an order of a court of competent jurisdiction directing the trustee to transfer to the commissioner with regulatory oversight all of the assets of the trust fund. [2001, c. 47, §5 (NEW).]
B. The assets must be distributed by and claims must be filed with and valued by the commissioner with regulatory oversight in accordance with the laws of the state in which the trust is domiciled that are applicable to the liquidation of domestic insurance companies. [2001, c. 47, §5 (NEW).]
C. If the commissioner with regulatory oversight determines that the assets of the trust fund or any part of the assets of the trust fund are not necessary to satisfy the claims of the United States ceding insurers of the grantor of the trust, the assets or part of the assets of the trust fund must be returned by the commissioner with regulatory oversight to the trustee for distribution in accordance with the trust agreement. [2001, c. 47, §5 (NEW).]
D. The grantor shall waive any right otherwise available to it under United States law that is inconsistent with this subsection. [2001, c. 47, §5 (NEW).]
[ 2001, c. 47, §5 (NEW) .]
3. An asset or a reduction from liability for the reinsurance ceded to an assuming insurer not meeting the requirements of subsection 1 is allowed in an amount not exceeding the liabilities carried by the ceding insurer. The reduction must equal the value of funds held by or on behalf of the ceding insurer, including funds held in trust for the ceding insurer, under a reinsurance contract with such assuming insurer as security for the payment of obligations under the contract, if such security is held in the United States subject to withdrawal solely by, and under the exclusive control of, the ceding insurer or, in the case of a trust, held in a qualified United States financial institution. This security may be in the form of:
A. Cash; [1989, c. 846, Pt. E, §2 (NEW); 1989, c. 846, Pt. E, §4 (AFF).]
B. Securities listed by the Securities Valuation Office of the National Association of Insurance Commissioners and qualifying as admitted assets; or [1989, c. 846, Pt. E, §2 (NEW); 1989, c. 846, Pt. E, §4 (AFF).]
C. Clean, irrevocable, unconditional letters of credit, issued or confirmed by a qualified United States financial institution no later than December 31st of the year for which filing is being made and in the possession of the ceding company on or before the filing date of its annual statement.
(1) A letter of credit from an issuer determined to be acceptable as of the date of issuance or the date of confirmation of the letter, notwithstanding the issuing or confirming institution's subsequent failure to meet applicable standards of issuer acceptability, continues to be acceptable as security until its expiration, extension, renewal, modification or amendment, whichever first occurs. The ceding insurer shall replace a nonqualifying letter of credit at its earliest opportunity.
(2) The letter of credit must indicate that it is not subject to any condition or qualification outside the letter of credit, and that the beneficiary need only draw a sight draft under the letter and present the letter to obtain funds and that no other document need be presented. [1993, c. 313, §18 (AMD).]
[ 2001, c. 47, §6 (AMD) .]
4. For purposes of this section, a "qualified United States financial institution" means an institution that:
A. Is organized or, in the case of a United States branch or agency office of a foreign banking organization, is licensed under the laws of the United States or any state of the United States; [1991, c. 828, §17 (AMD).]
B. Is regulated, supervised and examined by federal or state authorities having regulatory authority over banks and trust companies; and [1991, c. 828, §17 (AMD).]
C. Has been determined by the superintendent or the Securities Valuation Office of the National Association of Insurance Commissioners to meet standards of financial condition and standing that are considered necessary and appropriate to regulate the quality of financial institutions whose letters of credit will be acceptable to the superintendent. [1991, c. 828, §17 (NEW).]
[ 1991, c. 828, §17 (AMD) .]
4-A. "Qualified United States financial institution" means for purposes of those provisions of this section specifying those institutions that are eligible to act as a fiduciary of a trust an institution that:
A. Is organized or in the case of a United States branch or agency office of a foreign banking organization licensed under the laws of the United States or any state of the United States and has been granted authority to operate with fiduciary powers; and [1991, c. 828, §18 (NEW).]
B. Is regulated, supervised and examined by federal or state authorities having regulatory authority over banks and trust companies. [RR 1993, c. 1, §56 (COR).]
[ RR 1993, c. 1, §56 (COR) .]
5. Credit is allowed as an asset or deduction from liability to any ceding insurer only for reinsurance ceded to an assuming insurer qualified under this section, except that no credit is allowed, unless the reinsurance contract provides, in substance, that in the event of the insolvency of the ceding insurer, the reinsurance is payable under a contract or contracts reinsured by the assuming insurer on the basis of reported claims allowed by the court, without diminution because of the insolvency of the ceding insurer. The payments must be made directly to the ceding insurer or to the ceding insurer's domiciliary receiver unless the contract or other written agreement specifically provides another payee in the event of the insolvency of the ceding insurer or unless the assuming insurer, with the consent of the direct insured or insureds, has assumed the policy obligations of the ceding insurer as direct obligations of the assuming insurer to the payees under the reinsured policies and in substitution for the obligations of the ceding insurer to those payees.
The reinsurance agreement may condition the payments upon written notice by the ceding insurer's domiciliary receiver to the assuming insurer of the pendency of a claim on the contract reinsured within a reasonable time after the claim is filed in the proceeding where the claim is to be adjudicated. During the pendency of such a claim, any assuming insurer may investigate the claim and interpose, at the assuming insurer's own expense, any defenses in the proceeding that the assuming insurer determines available to the ceding insurer or to the ceding insurer's receiver. The expenses may be filed as a claim against the insolvent ceding insurer to the extent of its proportionate share of the benefit that may accrue to the ceding insurer solely as a result of the defense undertaken by the assuming insurer. When 2 or more assuming insurers are involved in the same claim and a majority in interest elect to interpose a defense to the claim, the expense must be apportioned in accordance with the terms of the reinsurance agreement as though the expense had been incurred by the ceding insurer.
[ 2001, c. 47, §7 (AMD) .]
6.
[ 1999, c. 113, §21 (RP) .]
7. The superintendent may adopt rules, subject to Title 5, chapter 375, to implement this section. Rules adopted under this section are routine technical rules pursuant to Title 5, chapter 375, subchapter II-A.
[ 2001, c. 47, §8 (AMD) .]
SECTION HISTORY
1989, c. 846, §§E2,4 (NEW). 1991, c. 38, (AMD). 1991, c. 828, §§16-18 (AMD). RR 1993, c. 1, §56 (COR). 1993, c. 313, §§17,18 (AMD). 1993, c. 666, §C1 (AMD). 1999, c. 113, §§19-21 (AMD). 2001, c. 47, §§2-8 (AMD). 2003, c. 249, §1 (AMD). 2007, c. 386, §1 (AMD).
