§ 36-5122. Requirements for allowance of credit.

A.  Credit for reinsurance shall be allowed a domestic ceding insurer as either an asset or a reduction from liability on account of reinsurance ceded only when the reinsurer meets the requirements of subsection B, C, D, E or F of this section.  Credit shall be allowed under subsection B, C or D of this section only as respects cessions of those kinds or classes of business in which the assuming insurer is licensed or otherwise permitted to write or assume in its state of domicile or, in the case of a United States branch of an alien assuming insurer, in the state through which it is licensed to transact insurance or reinsurance.  Credit shall be allowed under subsection D or E of this section only if the applicable requirements of subsection G have been satisfied.

B.  Credit shall be allowed when the reinsurance is ceded to an assuming insurer that is licensed to transact insurance or reinsurance in this state.

C.  Credit shall be allowed when the reinsurance is ceded to an assuming insurer that is accredited as a reinsurer in this state.  An accredited reinsurer is one that:

1.  Files with the Insurance Commissioner evidence of its submission to this state's jurisdiction;

2.  Submits to this state's authority to examine its books and records;

3.  Is licensed to transact insurance or reinsurance in at least one state, or in the case of a United States branch of an alien assuming insurer is entered through and licensed to transact insurance or reinsurance in at least one state; and

4.  Files annually with the Insurance Commissioner a copy of its annual statement filed with the insurance department of its state of domicile and a copy of its most recent audited financial statement, and either:

a.maintains a surplus as regards policyholders in an amount which is not less than Twenty Million Dollars ($20,000,000.00) and whose accreditation has not been denied by the Insurance Commissioner within ninety (90) days of its submission, or

b.maintains a surplus as regards policyholders in an amount less than Twenty Million Dollars ($20,000,000.00) and whose accreditation has been approved by the Insurance Commissioner.

No credit shall be allowed a domestic ceding insurer, if the assuming insurers' accreditation has been revoked by the Insurance Commissioner after notice and opportunity for hearing.

D.  Credit shall be allowed when the reinsurance is ceded to an assuming insurer that is domiciled in, or in the case of a United States branch of an alien assuming insurer is entered through, a state that employs standards regarding credit for reinsurance substantially similar to those applicable under this statute and the assuming insurer or United States branch of an alien assuming insurer:

1.  Maintains a surplus as regards policyholders in an amount not less than Twenty Million Dollars ($20,000,000.00); and

2.  Submits to the authority of this state to examine its books and records.

The requirement of paragraph 1 of this subsection does not apply to reinsurance ceded and assumed pursuant to pooling arrangements among insurers in the same holding company system.

E.  1.  Credit shall be allowed when the reinsurance is ceded to an assuming insurer that maintains a trust fund in a qualified United States financial institution, as defined in subsection J of this section, for the payment of the valid claims of its United States ceding insurers, their assigns and successors in interest.  To enable the Insurance Commissioner to determine the sufficiency of the trust fund, the assuming insurer shall report annually to the Insurance Commissioner information substantially the same as that required to be reported on the National Association of Insurance Commissioners annual statement form by licensed insurers.  The assuming insurer shall submit to examination of its books and records by the Commissioner and bear the expense of examination.

2.  Credit for reinsurance shall not be granted under this subsection unless the form of the trust and any amendments to the trust have been approved by the Commissioner of another state who, pursuant to the terms of the trust instrument, has accepted principal regulatory oversight of the trust.  The form of the trust and any trust amendments also shall be filed with the Insurance Commissioner of every state in which the ceding insurer beneficiaries of the trust are domiciled.  The trust instrument shall provide that contested claims shall be valid and enforceable upon the final order of any court of competent jurisdiction in the United States.  The trust shall vest legal title to its assets in  its trustees for the benefit of the assuming insurer’s United States  ceding insurers, their assigns and successors in interest.  The trust and the assuming insurer shall be subject to examination as determined by the Insurance Commissioner.  The trust shall remain in effect for as long as the assuming insurer has outstanding obligations due under the reinsurance agreements subject to the trust.

3.  No later than March 1 of each year the trustees of the trust shall report to the Insurance Commissioner in writing the balance of the trust and listing the trust's investments at the preceding year end and shall certify the date of termination of the trust, if so planned, or certify that the trust shall not expire prior to the next following December 31.

4.  The following requirements apply to the following categories of assuming insurer:

a.              the trust fund for a single assuming insurer shall consist of funds in trust in an amount not less than the assuming insurer’s liabilities attributable to reinsurance ceded by United States ceding insurers, and, in addition, the assuming insurer shall maintain a trusteed surplus of not less than Twenty Million Dollars ($20,000,000.00),

b.  (1)  in the case of a group including incorporated and individual unincorporated underwriters:

(a)              for reinsurance ceded under reinsurance agreements with an inception, amendment or renewal date on or after August 1, 1995, the trust shall consist of a trusteed account in an amount not less than the group’s several liabilities attributable to business ceded by United States-domiciled ceding insurers to any member of the group,

(b)              for reinsurance ceded under reinsurance agreements with an inception date on or before July 31, 1995, and not amended or renewed after that date, notwithstanding the other provisions of this act, the trust shall 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, and

(c)              in addition to these trusts, the group shall maintain in trust a trusteed surplus of which One Hundred Million Dollars ($100,000,000.00) shall be held jointly for the benefit of the United States-domiciled ceding insurers of any member of the group for all years of account,

(2)              the incorporated members of the group shall not be engaged in any business other than underwriting as a member of the group and shall be subject to the same level of regulation and solvency control by the group's domiciliary regulator as are the unincorporated members, and

(3)              within ninety (90) days after its financial statements are due to be filed with the group’s domiciliary regulator, the group shall provide to the Commissioner an annual certification by the group’s domiciliary regulator of the solvency of each underwriter member; or if a certification is unavailable, financial statements, prepared by independent public accountants, of each underwriter member of the group, and

c.              in the case of a group of incorporated underwriters under common administration, the group shall:

(1)              have continuously transacted an insurance business outside the United States for at least three (3) years immediately prior to making application for accreditation,

(2)              maintain aggregate policyholders’ surplus of at least Ten Billion Dollars ($10,000,000,000.00),

(3)              maintain a trust fund in an amount not less than the group’s several liabilities attributable to business ceded by United States-domiciled ceding insurers to any member of the group pursuant to reinsurance contracts issued in the name of the group,

(4)              in addition, maintain a joint trusteed surplus of which One Hundred Million Dollars ($100,000,000.00) shall be held jointly for the benefit of United States-domiciled ceding insurers of any member of the group as additional security for these liabilities, and

(5)              within ninety (90) days after its financial statements are due to be filed with the group's domiciliary regulator, make available to the Commissioner an annual certification of each underwriter member's solvency by the member's domiciliary regulator and financial statements of each underwriter member of the group prepared by its independent public accountant.

F.  Credit shall be allowed when the reinsurance is ceded to an assuming insurer not meeting the requirements of subsection B, C, D or E of this section but only as the insurance of risks located in jurisdictions where the reinsurance is required by applicable law or regulation of that jurisdiction.

G.  If the assuming insurer is not licensed or accredited to transact insurance or reinsurance in this state, the credit permitted by subsections D and E of this section shall not be allowed unless the assuming insurer agrees in the reinsurance agreements:

1.  That in the event of the failure of the assuming insurer to perform its obligations under the terms of the reinsurance agreement, the assuming insurer, at the request of the ceding insurer, shall submit to the jurisdiction of any court of competent jurisdiction in any state of the United States, will comply with all requirements necessary to give the court jurisdiction, and will abide by the final decision of the court or of any appellate court in the event of an appeal; and

2.  To designate the Insurance Commissioner or a designated attorney as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the ceding company.

H.  The provisions of this section are not intended to conflict with or override the obligation of the parties to a reinsurance agreement to arbitrate their disputes, if this obligation is created in the agreement.

I.  If the assuming insurer does not meet the requirements of subsection B, C or D of this section, the credit permitted by subsection E of this section shall not be allowed unless the assuming insurer agrees in the trust agreements to the following conditions:

1.  Notwithstanding any other provisions in the trust instrument, if the trust fund is inadequate because it contains an amount less than the amount required by paragraph 4 of subsection E of 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;

2.  The assets shall be distributed by and claims shall 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;

3.  If the Commissioner with regulatory oversight determines that the assets of the trust fund or any part thereof are not necessary to satisfy the claims of the United States ceding insurers of the grantor of the trust, the assets or part thereof shall be returned by the Commissioner with regulatory oversight to the trustee for distribution in accordance with the trust agreement; and

4.  The grantor shall waive any right otherwise available to it under United States law that is inconsistent with this provision.

J.  1.  For purposes of subsection E of this section, “qualified United States financial institution” means an institution that:

a.              is organized or, in the case of a United States office of a foreign banking organization, is licensed under the laws of the United States or any state thereof,

b.              is regulated, supervised and examined by federal or state authorities having regulatory authority over banks and trust companies, and

c.              has been determined by either the Insurance Commissioner, or the Securities Valuation Office of the National Association of Insurance Commissioners, to meet such standards of financial condition and standing as are considered necessary and appropriate to regulate the quality of financial institutions whose letters of credit will be acceptable to the Commissioner.

2.  A “qualified United States financial institution” means, for purposes of those provisions of this law 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 thereof and has been granted authority to operate with fiduciary powers, and

b.              is regulated, supervised and examined by federal or state authorities having regulatory authority over banks and trust companies.

Added by Laws 1992, c. 178, § 36, eff. Sept. 1, 1992.  Amended by Laws 1994, c. 86, § 1, eff. Sept. 1, 1994; Laws 1997, c. 418, § 99, eff. Nov. 1, 1997; Laws 2000, c. 169, § 2, eff. Nov. 1, 2000.