2013 -- S 0667 SUBSTITUTE A

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LC01424/SUB A

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STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2013

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A N A C T

RELATING TO INSURANCE

     Introduced By: Senators Picard, and Walaska

     Date Introduced: March 06, 2013

     Referred To: Senate Corporations

(Business Regulation)

It is enacted by the General Assembly as follows:

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

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Reinsurance Act" is hereby amended to read as follows:

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

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

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

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

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

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

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

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

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

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

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have been satisfied.

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

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

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

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

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an An accredited accreditation a reinsurer is one which must:

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

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jurisdiction;

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

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

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

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transact insurance or reinsurance in at least one state; and

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

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

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financial statement, and either:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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dollars ($20,000,000); and

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

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

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

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company system.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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has accepted principal regulatory oversight of the trust.

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

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

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

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

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

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

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examination as determined by the commissioner.

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

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

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

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

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

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December 31.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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underwriters:

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

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

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

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

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

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

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

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

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business written in the United States;

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

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

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

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

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

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

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

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

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

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

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each underwriter member of the group.

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

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administration which the group shall:

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

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

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

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

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(iv)

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

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

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

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

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group shall

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

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

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

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

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

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

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

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by its independent public accountant;

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

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

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

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

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

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

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

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the reinsurance agreements subject to the trust;

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

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

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

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

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

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

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

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of that jurisdiction; or

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

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

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

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

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64-4 and 27-64-5.

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

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

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unless the assuming insurer agrees in the reinsurance agreements:

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

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

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

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

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

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

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

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on behalf of the ceding company;

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

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

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agreement.

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

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

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accordance with the requirements of this subsection.

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

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requirements:

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

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

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paragraph(f)(iii) of this subsection;

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

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

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

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rating agencies deemed acceptable by the commissioner pursuant to regulation;

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

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

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

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

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

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

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on an ongoing basis; and

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

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relevant by the commissioner.

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     (2) An association including incorporated and individual unincorporated underwriters

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

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requirements of paragraph (i) above:

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

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

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

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

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protection;

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

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

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

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unincorporated members; and

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

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

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

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

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accountants, of each underwriter member of the association.

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

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

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for certification by the commissioner as a certified reinsurer.

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

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

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

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

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

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

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

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

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

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

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

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

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

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jurisdictions, the commissioner shall provide thoroughly documented justification in accordance

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with criteria to be developed under regulations.

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

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

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

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

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revocation.

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

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

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

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all certified reinsurers and their ratings.

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

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

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commissioner.

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

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

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

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

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this subsection.

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

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

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

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

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

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

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

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

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

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

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any other such trust account.

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

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

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

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

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

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

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

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

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paid in full when due.

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

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

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percent (100%) of its obligations.

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

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voluntary surrender and inactive status.

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

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

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or to a reinsurer whose certification has been suspended.

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

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

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

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

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

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

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

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

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

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

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

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

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regulation of that jurisdiction.

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

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

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allowed unless the assuming insurer agrees in the reinsurance agreements:

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

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

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

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

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

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

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

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behalf of the ceding insurer.

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

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

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agreement.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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inconsistent with this provision.

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     (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.

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     (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:

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     (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.

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     (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.

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     (k) Concentration Risk.

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     (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

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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.

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

11-34

insurer.

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     (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.

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     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.

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LC01424/SUB A

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N A C T

RELATING TO INSURANCE

***

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

15-2

National Association of Insurance Commissioners model.

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     This act would take effect upon passage.

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LC01424/SUB A

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