2013 -- H 5608 SUBSTITUTE A

=======

LC01422/SUB A

=======

STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2013

____________

A N A C T

RELATING TO INSURANCE

     Introduced By: Representatives Palumbo, Kennedy, San Bento, and Keable

     Date Introduced: February 27, 2013

     Referred To: House Corporations

(Business Regulation)

It is enacted by the General Assembly as follows:

1-1

     SECTION 1. Section 27-1.1-1 of the General Laws in Chapter 27-1.1 entitled "Credit for

1-2

Reinsurance Act" is hereby amended to read as follows:

1-3

     27-1.1-1. Credit allowed a domestic ceding insurer. -- (a) Credit for reinsurance shall

1-4

be allowed a domestic ceding insurer as either an asset or a deduction reduction from liability on

1-5

account of reinsurance ceded only when the reinsurer meets the requirements of subsection

1-6

subsections (b), (c), (d), (e), or (f). If meeting the requirements of subsection (d) or (e), the

1-7

requirements of or (g) of this section. Credit shall be allowed under subsections (b), (c) or (d) of

1-8

this section only as respects cessions of those kinds or classes of business which the assuming

1-9

insurer is licensed or otherwise permitted to write or assume in its state of domicile or, in the case

1-10

of a U.S. branch of an alien assuming insurer, in the state through which it is entered and licensed

1-11

to transact insurance or reinsurance. Credit shall be allowed under subsections (d) or (e) of this

1-12

section only if the applicable requirements of subsection (g)(h) of this section must also be met

1-13

have been satisfied.

1-14

      (b) Credit shall be allowed when the reinsurance is ceded to an assuming insurer which

1-15

that is licensed to transact insurance or reinsurance in this state.

1-16

      (c)(1) Credit shall be allowed when the reinsurance is ceded to an assuming insurer

1-17

which that is accredited by the commissioner as a reinsurer in this state. In order to be eligible for

1-18

an An accredited accreditation a reinsurer is one which must:

1-19

      (i)(1) Files File with the commissioner evidence of its submission to this state's

1-20

jurisdiction;

2-1

      (ii)(2) Submits Submit to this state's authority to examine its books and records;

2-2

      (iii)(3) Is Be licensed to transact insurance or reinsurance in at least one state, or in the

2-3

case of a United States branch of an alien assuming insurer is be entered through and licensed to

2-4

transact insurance or reinsurance in at least one state; and

2-5

      (iv)(4) Annually files file with the commissioner a copy of its annual statement filed

2-6

with the insurance department of its state of domicile and a copy of its most recent audited

2-7

financial statement, and either:

2-8

     (5) Demonstrate to the satisfaction of the commissioner that it has adequate financial

2-9

capacity to meet its reinsurance obligations and is otherwise qualified to assume reinsurance from

2-10

domestic insurers. An assuming insurer is deemed to meet this requirement as of the time of its

2-11

application if it maintains a surplus as regards policyholders in an amount not less than twenty

2-12

million dollars ($20,000,000), and its accreditation has not been denied by the commissioner

2-13

within ninety (90) days after submission of its application.

2-14

     (A) Maintains a surplus regarding policyholders in an amount which is not less than

2-15

twenty million dollars ($20,000,000) and whose accreditation has not been denied by the

2-16

commissioner within ninety (90) days of its submission; or

2-17

     (B) Maintains a surplus regarding policyholders in an amount less than twenty million

2-18

dollars ($20,000,000) and whose accreditation has been approved by the commissioner;

2-19

     (2) No credit shall be allowed a domestic ceding insurer if the assuming insurers'

2-20

accreditation has been revoked by the commissioner after notice and hearing.

2-21

      (d)(1) Credit shall be allowed when the reinsurance is ceded to an assuming insurer

2-22

which that is domiciled and licensed in, or in the case of a United States branch of an alien

2-23

assuming insurer is entered through, a state which that employs standards regarding credit for

2-24

reinsurance substantially similar to those applicable under this statute, and the assuming insurer

2-25

or U.S. branch of an alien assuming insurer:

2-26

      (i) Maintains a surplus regarding policyholders in an amount not less than twenty million

2-27

dollars ($20,000,000); and

2-28

      (ii) Submits to the authority of this state to examine its books and records; .

2-29

      (2) Provided, that the requirement of subsection (d)(1)(i) does not apply to reinsurance

2-30

ceded and assumed pursuant to pooling arrangements among insurers in the same holding

2-31

company system.

2-32

      (e)(1) Credit shall be allowed when the reinsurance is ceded to an assuming insurer

2-33

which that maintains a trust fund in a qualified United States financial institution, as defined in

2-34

section 27-1.1-3(b), for the payment of the valid claims of its United States policyholders and

3-1

ceding insurers, and their assigns and successors in interest. To enable the commissioner to

3-2

determine the sufficiency of the trust fund, the The assuming insurer shall report annually to the

3-3

commissioner information substantially the same as that required to be reported on the National

3-4

Association of Insurance Commissioners annual statement form by licensed insurers. to enable

3-5

the commissioner to determine the sufficiency of the trust fund. In the case of a single assuming

3-6

insurer, the trust shall consist of a trusted account representative of the assuming insurer's

3-7

liabilities attributable to business written in the United States and, in addition, the assuming

3-8

insurer shall maintain a trusted surplus of not less than twenty million dollars ($20,000,000). In

3-9

the case of a group including incorporated and/or individual unincorporated underwriters, the

3-10

trust shall consist of a trusted account representative of the group's liabilities attributable to

3-11

business written in the United States and, in addition, the group shall maintain a trusted surplus of

3-12

which one hundred million dollars ($100,000,000) shall be held jointly for the benefit of United

3-13

States ceding insurers of any member of the group; the incorporated members of the group shall

3-14

not be engaged in any business other than underwriting as a member of the group and shall be

3-15

subject to the same level of solvency regulation and control by the group's domiciliary regulator

3-16

as are the unincorporated members; and the group shall make available to the commissioner an

3-17

annual certification of the solvency of each underwriter by the group's domiciliary regulator and

3-18

its independent public accountants; The assuming insurer shall submit to examination of its books

3-19

and records by the commissioner, and bear the expense of examination.

3-20

     (2)(i) Credit for reinsurance shall not be granted under this subsection unless the form of

3-21

the trust and any amendments to the trust have been approved by:

3-22

     (A) The commissioner of the state where the trust is domiciled; or

3-23

     (B) The commissioner of another state who, pursuant to the terms of the trust instrument,

3-24

has accepted principal regulatory oversight of the trust.

3-25

     (ii) The form of the trust and any trust amendments shall also be filed with the

3-26

commissioner of every state in which the ceding insurer beneficiaries of the trust are domiciled.

3-27

The trust instrument shall provide that contested claims shall be valid and enforceable upon the

3-28

final order of any court of competent jurisdiction in the United States. The trust shall vest legal

3-29

title to its assets in its trustees for the benefit of the assuming insurer's U.S. ceding insurers, their

3-30

assigns and successors in interest. The trust and the assuming insurer shall be subject to

3-31

examination as determined by the commissioner.

3-32

     (iii) The trust shall remain in effect for as long as the assuming insurer has outstanding

3-33

obligations due under the reinsurance agreements subject to the trust. No later than February 28

3-34

of each year the trustee of the trust shall report to the commissioner in writing the balance of the

4-1

trust and listing the trust's investments at the preceding year end and shall certify the date of

4-2

termination of the trust, if so planned, or certify that the trust will not expire prior to the following

4-3

December 31.

4-4

     (3) The following requirements apply to the following categories of assuming insurer:

4-5

     (i) The trust fund for a single assuming insurer shall consist of funds in trust in an amount

4-6

not less than the assuming insurer's liabilities attributable to reinsurance ceded by U.S. ceding

4-7

insurers, and, in addition, the assuming insurer shall maintain a trusteed surplus of not less than

4-8

twenty million dollars ($20,000,000), except as provided in paragraph(3)(ii) below.

4-9

     (ii) At any time after the assuming insurer has permanently discontinued underwriting

4-10

new business secured by the trust for at least three (3) full years, the commissioner with principal

4-11

regulatory oversight of the trust may authorize a reduction in the required trusteed surplus, but

4-12

only after a finding, based on an assessment of the risk, that the new required surplus level is

4-13

adequate for the protection of U.S. ceding insurers, policyholders and claimants in light of

4-14

reasonably foreseeable adverse loss development. The risk assessment may involve an actuarial

4-15

review, including an independent analysis of reserves and cash flows, and shall consider all

4-16

material risk factors, including when applicable the lines of business involved, the stability of the

4-17

incurred loss estimates and the effect of the surplus requirements on the assuming insurer's

4-18

liquidity or solvency. The minimum required trusteed surplus may not be reduced to an amount

4-19

less than thirty percent (30%) of the assuming insurer's liabilities attributable to reinsurance ceded

4-20

by U.S. ceding insurers covered by the trust.

4-21

     (iii)(A) In the case of a group including incorporated and individual unincorporated

4-22

underwriters:

4-23

     (B) For reinsurance ceded under reinsurance agreements with an inception, amendment

4-24

or renewal date on or after January 1, 1993, the trust shall consist of a trusteed account in an

4-25

amount not less than the respective underwriters' several liabilities attributable to business ceded

4-26

by U.S. domiciled ceding insurers to any underwriter of the group;

4-27

     (C) For reinsurance ceded under reinsurance agreements with an inception date on or

4-28

before December 31, 1992, and not amended or renewed after that date, not-withstanding the

4-29

other provisions of this chapter, the trust shall consist of a trusteed account in an amount not less

4-30

than the respective underwriters' several insurance and reinsurance liabilities attributable to

4-31

business written in the United States;

4-32

     (D) In addition to these trusts, the group shall maintain in trust a trusteed surplus of

4-33

which one hundred million dollars ($100,000,000) shall be held jointly for the benefit of the U.S.

4-34

domiciled ceding insurers of any member of the group for all years of account; and

5-1

     (E) The incorporated members of the group shall not be engaged in any business other

5-2

than underwriting as a member of the group and shall be subject to the same level of regulation

5-3

and solvency control by the group's domiciliary regulator as are the unincorporated members.

5-4

     (I) Within ninety (90) days after its financial statements are due to be filed with the

5-5

group's domiciliary regulator, the group shall provide to the commissioner an annual certification

5-6

by the group's domiciliary regulator of the solvency of each underwriter member; or if a

5-7

certification is unavailable, financial statements, prepared by independent public accountants, of

5-8

each underwriter member of the group.

5-9

     (2)(iv) In the case of a group of incorporated insurers underwriters under common

5-10

administration which the group shall:

5-11

     (i) complies with the filing requirements contained in subsection (e)(1), (ii) has

5-12

     (A) Have continuously transacted an insurance business outside the United States for at

5-13

least three (3) years immediately prior to making application for accreditation, (iii) submits to this

5-14

state's authority to examine its books and records and bears the expenses of the examination, and

5-15

(iv)

5-16

     (B) Maintain an aggregate policyholders surplus of ten billion dollars ($10,000,000,000).,

5-17

     (C) Maintain a the trust fund shall be in an amount equal to not less than the group's

5-18

several liabilities attributable to business ceded by United States domiciled ceding insurers to any

5-19

member of the group pursuant to reinsurance contracts issued in the name of the group.; plus the

5-20

group shall

5-21

     (D) In addition, maintain a joint trusted surplus of which one hundred million dollars

5-22

($100,000,000) shall be held jointly for the benefit of U.S. domiciled ceding insurers of any

5-23

member of the group as additional security for any these liabilities, and

5-24

     (E) Within ninety (90) days after its financial statements are due to be filed with the

5-25

group's domiciliary regulator, each member of the group shall make available to the

5-26

commissioner an annual certification of the each underwriter member's solvency by the member's

5-27

domiciliary regulator, and financial statements of each underwriter member of the group prepared

5-28

by its independent public accountant;

5-29

     (3) The trust shall be established in a form approved by the commissioner. The trust

5-30

instrument shall provide that contested claims shall be valid and enforceable upon the final order

5-31

of any court of competent jurisdiction in the United States. The trust shall vest legal title to its

5-32

assets in the trustees of the trust for its United States policyholders and ceding insurers, and their

5-33

assigns and successors in interest. The trust and the assuming insurer shall be subject to

5-34

examination as determined by the commissioner. The trust described in this subsection must

6-1

remain in effect for as long as the assuming insurer shall have outstanding obligations due under

6-2

the reinsurance agreements subject to the trust;

6-3

     (4) No later than February 28 of each year the trustees of the trust shall report to the

6-4

commissioner in writing setting forth the balance of the trust and listing the trust's investments at

6-5

the preceding year end and shall certify the date of termination of the trust, if this is planned, or

6-6

certify that the trust shall not expire prior to the next following December 31;

6-7

     (f) (1) Credit shall be allowed when the reinsurance is ceded to an assuming insurer not

6-8

meeting the requirements of subsections (b), (c), (d), or (e), but only with respect to the insurance

6-9

of risks located in jurisdictions where the reinsurance is required by applicable law or regulation

6-10

of that jurisdiction; or

6-11

     (2) Credit may be allowed, at the discretion of the commissioner, when reinsurance is

6-12

ceded to a protected cell of a protected cell company organized under the Protected Cell

6-13

Companies Act, chapter 64 of this title, in the form of an attribution of assets, insurance liabilities

6-14

and exposures from the general account of the protected cell company as required by sections 27-

6-15

64-4 and 27-64-5.

6-16

     (g) (1) If the assuming insurer is not licensed or accredited to transact insurance or

6-17

reinsurance in this state, the credit permitted by subsections (d) and (e) shall not be allowed

6-18

unless the assuming insurer agrees in the reinsurance agreements:

6-19

     (i) That in the event of the failure of the assuming insurer to perform its obligations under

6-20

the terms of the reinsurance agreement, the assuming insurer, at the request of the ceding insurer,

6-21

shall submit to the jurisdiction of any court of competent jurisdiction in any state of the United

6-22

States, will comply with all requirements necessary to give the court jurisdiction, and will abide

6-23

by the final decision of the court or of any appellate court in the event of an appeal; and

6-24

     (ii) To designate the commissioner or a designated attorney as its true and lawful attorney

6-25

upon whom may be served any lawful process in any action, suit, or proceeding instituted by or

6-26

on behalf of the ceding company;

6-27

     (2) This subsection is not intended to conflict with or override the obligation of the

6-28

parties to a reinsurance agreement to arbitrate their disputes, if an obligation is created in the

6-29

agreement.

6-30

     (f) Credit shall be allowed when the reinsurance is ceded to an assuming insurer that has

6-31

been certified by the commissioner as a reinsurer in this state and secures its obligations in

6-32

accordance with the requirements of this subsection.

6-33

     (1) In order to be eligible for certification, the assuming insurer shall meet the following

6-34

requirements:

7-1

     (i) The assuming insurer must be domiciled and licensed to transact insurance or

7-2

reinsurance in a qualified jurisdiction, as determined by the commissioner pursuant to

7-3

paragraph(f)(iii) of this subsection;

7-4

     (ii) The assuming insurer must maintain minimum capital and surplus, or its equivalent,

7-5

in an amount to be determined by the commissioner pursuant to regulation;

7-6

     (iii) The assuming insurer must maintain financial strength ratings from two or more

7-7

rating agencies deemed acceptable by the commissioner pursuant to regulation;

7-8

     (iv) The assuming insurer must agree to submit to the jurisdiction of this state, appoint

7-9

the commissioner as its agent for service of process in this state, and agree to provide security for

7-10

one hundred percent (100%) of the assuming insurer's liabilities attributable to reinsurance ceded

7-11

by U.S. ceding insurers if it resists enforcement of a final U.S. judgment;

7-12

     (v) The assuming insurer must agree to meet applicable information filing requirements

7-13

as determined by the commissioner, both with respect to an initial application for certification and

7-14

on an ongoing basis; and

7-15

     (vi) The assuming insurer must satisfy any other requirements for certification deemed

7-16

relevant by the commissioner.

7-17

     (2) An association including incorporated and individual unincorporated underwriters

7-18

may be a certified reinsurer. In order to be eligible for certification, in addition to satisfying

7-19

requirements of paragraph (i) above:

7-20

     (i) The association shall satisfy its minimum capital and surplus requirements through the

7-21

capital and surplus equivalents (net of liabilities) of the association and its members, which shall

7-22

include a joint central fund that may be applied to any unsatisfied obligation of the association or

7-23

any of its members, in an amount determined by the commissioner to provide adequate

7-24

protection;

7-25

     (ii) The incorporated members of the association shall not be engaged in any business

7-26

other than underwriting as a member of the association and shall be subject to the same level of

7-27

regulation and solvency control by the association's domiciliary regulator as are the

7-28

unincorporated members; and

7-29

     (iii) Within ninety (90) days after its financial statements are due to be filed with the

7-30

association's domiciliary regulator, the association shall provide to the commissioner an annual

7-31

certification by the association's domiciliary regulator of the solvency of each underwriter

7-32

member; or if a certification is unavailable, financial statements, prepared by independent public

7-33

accountants, of each underwriter member of the association.

8-34

     (3) The commissioner shall create and publish a list of qualified jurisdictions, under

8-35

which an assuming insurer licensed and domiciled in such jurisdiction is eligible to be considered

8-36

for certification by the commissioner as a certified reinsurer.

8-37

     (i) In order to determine whether the domiciliary jurisdiction of a non-U.S. assuming

8-38

insurer is eligible to be recognized as a qualified jurisdiction, the commissioner shall evaluate the

8-39

appropriateness and effectiveness of the reinsurance supervisory system of the jurisdiction, both

8-40

initially and on an ongoing basis, and consider the rights, benefits and the extent of reciprocal

8-41

recognition afforded by the non-U.S. jurisdiction to reinsurers licensed and domiciled in the U.S.

8-42

A qualified jurisdiction must agree to share information and cooperate with the commissioner

8-43

with respect to all certified reinsurers domiciled within that jurisdiction. A jurisdiction may not be

8-44

recognized as a qualified jurisdiction if the commissioner has determined that the jurisdiction

8-45

does not adequately and promptly enforce final U.S. judgments and arbitration awards.

8-46

Additional factors may be considered in the discretion of the commissioner.

8-47

     (ii) A list of qualified jurisdictions shall be published through the NAIC committee

8-48

process. The commissioner shall consider this list in determining qualified jurisdictions. If the

8-49

commissioner approves a jurisdiction as qualified that does not appear on the list of qualified

8-50

jurisdictions, the commissioner shall provide thoroughly documented justification in accordance

8-51

with criteria to be developed under regulations.

8-52

     (iii) U.S. jurisdictions that meet the requirement for accreditation under the NAIC

8-53

financial standards and accreditation program shall be recognized as qualified jurisdictions.

8-54

     (iv) If a certified reinsurer's domiciliary jurisdiction ceases to be a qualified jurisdiction,

8-55

the commissioner has the discretion to suspend the reinsurer's certification indefinitely, in lieu of

8-56

revocation.

8-57

     (4) The commissioner shall assign a rating to each certified reinsurer, giving due

8-58

consideration to the financial strength ratings that have been assigned by rating agencies deemed

8-59

acceptable to the commissioner pursuant to regulation. The commissioner shall publish a list of

8-60

all certified reinsurers and their ratings.

8-61

     (5) A certified reinsurer shall secure obligations assumed from U.S. ceding insurers under

8-62

this subsection at a level consistent with its rating, as specified in regulations promulgated by the

8-63

commissioner.

8-64

     (i) In order for a domestic ceding insurer to qualify for full financial statement credit for

8-65

reinsurance ceded to a certified reinsurer, the certified reinsurer shall maintain security in a form

8-66

acceptable to the commissioner and consistent with the provisions of section 3, or in a multi-

8-67

beneficiary trust in accordance with subsection (e) of this section, except as otherwise provided in

8-68

this subsection.

9-1

     (ii) If a certified reinsurer maintains a trust to fully secure its obligations subject to

9-2

subsection (e) of this section, and chooses to secure its obligations incurred as a certified reinsurer

9-3

in the form of a multi-beneficiary trust, the certified reinsurer shall maintain separate trust

9-4

accounts for its obligations incurred under reinsurance agreements issued or renewed as a

9-5

certified reinsurer with reduced security as permitted by this subsection or comparable laws of

9-6

other U.S. jurisdictions and for its obligations subject to subsection (e) of this section. It shall be a

9-7

condition to the grant of certification under subsection (f) of this section that the certified

9-8

reinsurer shall have bound itself, by the language of the trust and agreement with the

9-9

commissioner with principal regulatory oversight of each such trust account, to fund, upon

9-10

termination of any such trust account, out of the remaining surplus of such trust any deficiency of

9-11

any other such trust account.

9-12

     (iii) The minimum trusteed surplus requirements provided in subsection D are not

9-13

applicable with respect to a multi-beneficiary trust maintained by a certified reinsurer for the

9-14

purpose of securing obligations incurred under this subsection, except that such trust shall

9-15

maintain a minimum trusteed surplus of ten million dollars ($10,000,000).

9-16

     (iv) With respect to obligations incurred by a certified reinsurer under this subsection, if

9-17

the security is insufficient, the commissioner shall reduce the allowable credit by an amount

9-18

proportionate to the deficiency, and has the discretion to impose further reductions in allowable

9-19

credit upon finding that there is a material risk that the certified reinsurer's obligations will not be

9-20

paid in full when due.

9-21

     (v) For purposes of this subsection, a certified reinsurer whose certification has been

9-22

terminated for any reason shall be treated as a certified reinsurer required to secure one hundred

9-23

percent (100%) of its obligations.

9-24

     (A) As used in this subsection, the term "terminated" refers to revocation, suspension,

9-25

voluntary surrender and inactive status.

9-26

     (B) If the commissioner continues to assign a higher rating as permitted by other

9-27

provisions of this section, this requirement does not apply to a certified reinsurer in inactive status

9-28

or to a reinsurer whose certification has been suspended.

9-29

     (6) If an applicant for certification has been certified as a reinsurer in an NAIC accredited

9-30

jurisdiction, the commissioner has the discretion to defer to that jurisdiction's certification, and

9-31

has the discretion to defer to the rating assigned by that jurisdiction, and such assuming insurer

9-32

shall be considered to be a certified reinsurer in this state.

9-33

     (7) A certified reinsurer that ceases to assume new business in this state may request to

9-34

maintain its certification in inactive status in order to continue to qualify for a reduction in

10-1

security for its in-force business. An inactive certified reinsurer shall continue to comply with all

10-2

applicable requirements of this subsection, and the commissioner shall assign a rating that takes

10-3

into account, if relevant, the reasons why the reinsurer is not assuming new business.

10-4

     (g) Credit shall be allowed when the reinsurance is ceded to an assuming insurer not

10-5

meeting the requirements of subsections (b), (c), (d) (e) or (f) of this section, but only as to the

10-6

insurance of risks located in jurisdictions where the reinsurance is required by applicable law or

10-7

regulation of that jurisdiction.

10-8

     (h) If the assuming insurer is not licensed, accredited or certified to transact insurance or

10-9

reinsurance in this state, the credit permitted by subsections (d) and (e) of this section shall not be

10-10

allowed unless the assuming insurer agrees in the reinsurance agreements:

10-11

     (1)(i) That in the event of the failure of the assuming insurer to perform its obligations

10-12

under the terms of the reinsurance agreement, the assuming insurer, at the request of the ceding

10-13

insurer, shall submit to the jurisdiction of any court of competent jurisdiction in any state of the

10-14

United States, will comply with all requirements necessary to give the court jurisdiction, and will

10-15

abide by the final decision of the court or of any appellate court in the event of an appeal; and

10-16

     (ii) To designate the commissioner or a designated attorney as its true and lawful attorney

10-17

upon whom may be served any lawful process in any action, suit or proceeding instituted by or on

10-18

behalf of the ceding insurer.

10-19

     (2) This subsection is not intended to conflict with or override the obligation of the

10-20

parties to a reinsurance agreement to arbitrate their disputes, if this obligation is created in the

10-21

agreement.

10-22

     (i) If the assuming insurer does not meet the requirements of subsections (b), (c) or (d),

10-23

the credit permitted by subsection (e) or (f) of this section shall not be allowed unless the

10-24

assuming insurer agrees in the trust agreements to the following conditions:

10-25

     (1) Notwithstanding any other provisions in the trust instrument, if the trust fund is

10-26

inadequate because it contains an amount less than the amount required by subsection (e)(iii) of

10-27

this section, or if the grantor of the trust has been declared insolvent or placed into receivership,

10-28

rehabilitation, liquidation or similar proceedings under the laws of its state or country of domicile,

10-29

the trustee shall comply with an order of the commissioner with regulatory oversight over the

10-30

trust or with an order of a court of competent jurisdiction directing the trustee to transfer to the

10-31

commissioner with regulatory oversight all of the assets of the trust fund.

10-32

     (2) The assets shall be distributed by and claims shall be filed with and valued by the

10-33

commissioner with regulatory oversight in accordance with the laws of the state in which the trust

10-34

is domiciled that are applicable to the liquidation of domestic insurance companies.

11-1

     (3) If the commissioner with regulatory oversight determines that the assets of the trust

11-2

fund or any part thereof are not necessary to satisfy the claims of the U.S. ceding insurers of the

11-3

grantor of the trust, the assets or part thereof shall be returned by the commissioner with

11-4

regulatory oversight to the trustee for distribution in accordance with the trust agreement.

11-5

     (4) The grantor shall waive any right otherwise available to it under U.S. law that is

11-6

inconsistent with this provision.

11-7

     (j) If an accredited or certified reinsurer ceases to meet the requirements for accreditation

11-8

or certification, the commissioner may suspend or revoke the reinsurer's accreditation or

11-9

certification.

11-10

     (1) The commissioner must give the reinsurer notice and opportunity for hearing. The

11-11

suspension or revocation may not take effect until after the commissioner's order on hearing,

11-12

unless:

11-13

     (i) The reinsurer waives its right to hearing;

11-14

     (ii) The commissioner's order is based on regulatory action by the reinsurer's domiciliary

11-15

jurisdiction or the voluntary surrender or termination of the reinsurer's eligibility to transact

11-16

insurance or reinsurance business in its domiciliary jurisdiction or in the primary certifying state

11-17

of the reinsurer under subparagraph (f)(vi) of this section; or

11-18

     (iii) The commissioner finds that an emergency requires immediate action and a court of

11-19

competent jurisdiction has not stayed the commissioner's action.

11-20

     (A) While a reinsurer's accreditation or certification is suspended, no reinsurance contract

11-21

issued or renewed after the effective date of the suspension qualifies for credit except to the

11-22

extent that the reinsurer's obligations under the contract are secured in accordance with Section 3.

11-23

If a reinsurer's accreditation or certification is revoked, no credit for reinsurance may be granted

11-24

after the effective date of the revocation except to the extent that the reinsurer's obligations under

11-25

the contract are secured in accordance with subsection (f)(v) or section 3.

11-26

     (k) Concentration Risk.

11-27

     (1) A ceding insurer shall take steps to manage its reinsurance recoverables proportionate

11-28

to its own book of business. A domestic ceding insurer shall notify the commissioner within

11-29

thirty (30) days after reinsurance recoverables from any single assuming insurer, or group of

11-30

affiliated assuming insurers, exceeds fifty percent (50%) of the domestic ceding insurer's last

11-31

reported surplus to policyholders, or after it is determined that reinsurance recoverables from any

11-32

single assuming insurer, or group of affiliated assuming insurers, is likely to exceed this limit.

11-33

The notification shall demonstrate that the exposure is safely managed by the domestic ceding

11-34

insurer.

12-1

     (2) A ceding insurer shall take steps to diversify its reinsurance program. A domestic

12-2

ceding insurer shall notify the commissioner within thirty (30) days after ceding to any single

12-3

assuming insurer, or group of affiliated assuming insurers, more than twenty percent (20%) of the

12-4

ceding insurer's gross written premium in the prior calendar year, or after it has determined that

12-5

the reinsurance ceded to any single assuming insurer, or group of affiliated assuming insurers, is

12-6

likely to exceed this limit. The notification shall demonstrate that the exposure is safely managed

12-7

by the domestic ceding insurer.

12-8

     SECTION 2. Sections 27-1.1-2 and 27-1.1-5 of the General Laws in Chapter 27-1.1

12-9

entitled "Credit for Reinsurance Act" are hereby amended to read as follows:

12-10

     27-1.1-2. Reduction from liability for reinsurance ceded by a domestic insurer to an

12-11

assuming insurer Asset or reduction from liability for reinsurance ceded by a domestic

12-12

insurer to an assuming insurer not meeting the requirements of 27-1.1-1. -- A An asset or a

12-13

reduction from liability for the reinsurance ceded by a domestic insurer to an assuming insurer

12-14

not meeting the requirements of section 27-1.1-1 shall be allowed in an amount not exceeding the

12-15

liabilities carried by the ceding insurer. The reduction shall be in the amount of funds held by or

12-16

on behalf of the ceding insurer, including funds held in trust for the ceding insurer, under a

12-17

reinsurance contract with the assuming insurer as security for the payment of obligations

12-18

thereunder under the contract, if the security is held in the United States subject to withdrawal

12-19

solely by, and under the exclusive control of, the ceding insurer, or, in the case of a trust, held in a

12-20

qualified United States financial institution as defined in section 27-1.1-3(b). This security may

12-21

be in the form of:

12-22

      (1) Cash;

12-23

      (2) Securities listed by the securities valuation office of the National Association of

12-24

Insurance Commissioners, including those deemed exempt from filing as defined by the Purposes

12-25

and Procedures Manual of the Securities Valuation Office, and qualifying as admitted assets;

12-26

      (3)(i) Clean, irrevocable, unconditional letters of credit, issued or confirmed by a

12-27

qualified United States financial institution as defined in section 27-1.1-3(a), no later than

12-28

December 31st in respect of the year for which the filing is being made, and in the possession of,

12-29

or in trust for, the ceding company insurer on or before the filing date of its annual statement.

12-30

     (ii) Letters of credit meeting applicable standards of issuer acceptability as of the dates of

12-31

their issuance or confirmation shall, notwithstanding the issuing or confirming institution's

12-32

subsequent failure to meet applicable standards of issuer acceptability, continue to be acceptable

12-33

as security until their expiration, extension, renewal, modification, or amendment, whichever first

12-34

occurs; or

13-1

      (4) Any other form of security acceptable to the commissioner.

13-2

     27-1.1-5. Reinsurance agreements affected. -- This chapter shall apply to all cessions

13-3

after June 18, 1991, the effective date of this chapter under reinsurance agreements that have had

13-4

an inception, anniversary, or renewal date not less than six (6) months after June 18, 1991, the

13-5

effective date of this chapter.

13-6

     SECTION 3. Chapter 27-1.1 of the General Laws entitled "Credit for Reinsurance Act" is

13-7

hereby amended by adding thereto the following section:

13-8

     27-1.1-0.5. Purpose. -- The purpose of this chapter is to protect the interest of insureds,

13-9

claimants, ceding insurers, assuming insurers and the public generally. The legislature hereby

13-10

declares its intent is to ensure adequate regulation of insurers and reinsurers and adequate

13-11

protection for those to whom they owe obligations. In furtherance of that state interest, the

13-12

legislature hereby provides a mandate that upon the insolvency of a non-U.S. insurer or reinsurer

13-13

that provides security to fund its U.S. obligations in accordance with this chapter, the assets

13-14

representing the security shall be maintained in the United States and claims shall be filed with

13-15

and valued by the state insurance commissioner with regulatory oversight, and the assets shall be

13-16

distributed, in accordance with the insurance laws of the state in which the trust is domiciled that

13-17

are applicable to the liquidation of domestic U.S. insurance companies. The legislature declares

13-18

that the matters contained in this chapter are fundamental to the business of insurance in

13-19

accordance with 15 U.S.C. §§ 1011-1012.

13-20

     SECTION 4. Sections 27-1.1-6 and 27-1.1-7 of the General Laws in Chapter 27-1.1

13-21

entitled "Credit for Reinsurance Act" are hereby repealed.

13-22

     27-1.1-6. Asset or deduction from liability. -- No credit shall be allowed as an admitted

13-23

asset or as a deduction from liability to any ceding company for reinsurance unless the

13-24

reinsurance is payable by the assuming company on the basis of the liability of the ceding

13-25

company under the contract or contracts reinsured without diminution because of the insolvency

13-26

of the ceding company.

13-27

     27-1.1-7. Payment by assuming company. -- (a) No credit shall be allowed for

13-28

reinsurance unless the reinsurance agreement provides that payments by the assuming company

13-29

shall be made directly to the ceding company or to its liquidator, receiver, or statutory successor,

13-30

except where the contract specifically provides another payee of the reinsurance in the event of

13-31

the insolvency of the ceding company, or where the assuming company, with the consent of the

13-32

direct insured or insureds, has assumed the policy obligations of the ceding company to the

13-33

payees under the policies and in substitution for the obligations of the ceding company to the

13-34

payees.

14-1

      (b) Except as provided in this section, no assuming company may pay or settle, or agree

14-2

to pay or settle, any policy claim, or any portion of a claim, directly to or with a policyholder of

14-3

any ceding company if an order of rehabilitation or liquidation has been entered against the

14-4

ceding company.

14-5

     SECTION 5. This act shall take effect upon passage.

=======

LC01422/SUB A

========

EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N A C T

RELATING TO INSURANCE

***

15-1

     This act would update the Credit for Reinsurance Act to the current version of the

15-2

National Association of Insurance Commissioners model.

15-3

     This act would take effect upon passage.

=======

LC01422/SUB A

=======