Chapter 091

2013 -- S 0667 SUBSTITUTE A

Enacted 06/17/13

 

A N A C T

RELATING TO INSURANCE

          

     Introduced By: Senators Picard, and Walaska

     Date Introduced: March 06, 2013

 

It is enacted by the General Assembly as follows:

 

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

Reinsurance Act" is hereby amended to read as follows:

 

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

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

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

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

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

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

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

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

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

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

have been satisfied.

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

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

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

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

an An accredited accreditation a reinsurer is one which must:

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

jurisdiction;

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

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

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

transact insurance or reinsurance in at least one state; and

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

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

financial statement, and either:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

dollars ($20,000,000); and

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

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

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

company system.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

has accepted principal regulatory oversight of the trust.

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

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

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

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

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

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

examination as determined by the commissioner.

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

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

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

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

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

December 31.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

underwriters:

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

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

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

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

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

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

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

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

business written in the United States;

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

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

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

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

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

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

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

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

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

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

each underwriter member of the group.

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

administration which the group shall:

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

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

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

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

(iv)

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

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

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

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

group shall

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

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

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

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

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

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

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

by its independent public accountant;

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

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

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

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

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

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

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

the reinsurance agreements subject to the trust;

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

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

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

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

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

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

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

of that jurisdiction; or

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

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

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

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

64-4 and 27-64-5.

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

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

unless the assuming insurer agrees in the reinsurance agreements:

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

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

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

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

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

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

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

on behalf of the ceding company;

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

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

agreement.

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

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

accordance with the requirements of this subsection.

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

requirements:

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

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

paragraph(f)(iii) of this subsection;

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

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

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

rating agencies deemed acceptable by the commissioner pursuant to regulation;

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

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

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

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

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

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

on an ongoing basis; and

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

relevant by the commissioner.

     (2) An association including incorporated and individual unincorporated underwriters

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

requirements of paragraph (i) above:

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

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

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

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

protection;

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

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

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

unincorporated members; and

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

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

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

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

accountants, of each underwriter member of the association.

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

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

for certification by the commissioner as a certified reinsurer.

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

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

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

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

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

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

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

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

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

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

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

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

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

jurisdictions, the commissioner shall provide thoroughly documented justification in accordance

with criteria to be developed under regulations.

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

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

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

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

revocation.

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

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

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

all certified reinsurers and their ratings.

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

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

commissioner.

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

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

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

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

this subsection.

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

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

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

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

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

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

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

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

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

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

any other such trust account.

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

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

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

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

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

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

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

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

paid in full when due.

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

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

percent (100%) of its obligations.

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

voluntary surrender and inactive status.

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

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

or to a reinsurer whose certification has been suspended.

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

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

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

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

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

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

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

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

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

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

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

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

regulation of that jurisdiction.

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

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

allowed unless the assuming insurer agrees in the reinsurance agreements:

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

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

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

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

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

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

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

behalf of the ceding insurer.

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

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

agreement.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

inconsistent with this provision.

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

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

certification.

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

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

unless:

     (i) The reinsurer waives its right to hearing;

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

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

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

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

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

competent jurisdiction has not stayed the commissioner's action.

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

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

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

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

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

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

     (k) Concentration Risk.

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

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

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

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

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

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

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

insurer.

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

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

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

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

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

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

by the domestic ceding insurer.

 

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

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

 

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

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

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

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

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

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

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

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

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

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

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

be in the form of:

      (1) Cash;

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

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

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

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

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

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

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

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

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

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

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

occurs; or

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

 

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

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

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

effective date of this chapter.

 

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

hereby amended by adding thereto the following section:

 

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

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

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

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

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

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

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

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

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

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

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

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

 

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

entitled "Credit for Reinsurance Act" are hereby repealed.

 

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

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

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

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

of the ceding company.

 

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

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

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

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

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

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

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

payees.

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

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

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

ceding company.

 

     SECTION 5. This act shall take effect upon passage.

     

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LC01424/SUB A

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