HAR §16-168-2
HAR §16-168-2. Severability
Cite as Haw. Code R. § 16-168-2
If any provision of
this chapter, or their application to any person or
circumstance, is held invalid, such determination
shall not affect other provisions or applications of
this chapter that can be given effect without the
invalid provision or application, and to that end the
provisions of this chapter are severable. [Eff
1/25/97; am and comp 11/10/16; comp 7/28/22; comp
3/8/25] (Auth: HRS §431:2-201) (Imp: HRS §431:4A-
101)
§16-168-3 Credit for reinsurance; reinsurer
licensed in this State. Pursuant to section 431:4A-
101(b), HRS, the commissioner shall allow credit for
reinsurance ceded by a domestic insurer to assuming
insurers that were licensed in this State as of the
date of the ceding insurer's statutory financial
statement. [Eff 1/25/97; am and comp 11/10/16; comp
7/28/22; comp 3/8/25] (Auth: HRS §§431:2-201,
431:4A-104) (Imp: HRS §431:4A-101)
§16-168-4
168-3
§16-168-4 Credit for reinsurance; accredited
reinsurers. (a) Pursuant to section 431:4A-101(b),
HRS, the commissioner shall allow credit for
reinsurance ceded by a domestic insurer to an assuming
insurer that is accredited as a reinsurer in this
State as of the date of the ceding insurer's statutory
financial statement. An accredited reinsurer is one
which must:
(1)
File a properly executed Form AR-1 dated
January 2012 (attached to and incorporated
by reference into this chapter) as evidence
of its submission to this State's
jurisdiction and to this State's authority
to examine its books and records;
(2)
File with the commissioner a certified copy
of a letter or a certificate of authority or
of compliance as evidence that it is
licensed to transact insurance or
reinsurance in at least one state, or, in
the case of a United States branch of an
alien assuming insurer, is entered through
and licensed to transact insurance or
reinsurance in at least one state;
(3)
File annually with the commissioner a copy
of its annual statement filed with the
insurance department of its state of
domicile or, in the case of an alien
assuming insurer, with the state through
which it is entered and in which it is
licensed to transact insurance or
reinsurance, and a copy of its most recent
audited financial statement; and
(4)
Maintain a surplus as regards policyholders
in an amount not less than $20,000,000, or
obtain the affirmative approval of the
commissioner upon a finding that it has
adequate financial capacity to meet its
reinsurance obligations and is otherwise
qualified to assume reinsurance from
domestic insurers.
§16-168-4
168-4
(b)
If the commissioner determines that the
assuming insurer has failed to meet or maintain any of
these qualifications, the commissioner may, upon
written notice and opportunity for hearing, suspend or
revoke the accreditation. Credit shall not be allowed
for a domestic ceding insurer under this section if
the assuming insurer’s accreditation has been revoked
by the commissioner, or if the reinsurance was ceded
while the assuming insurer’s accreditation was under
suspension by the commissioner. [Eff 1/25/97; am and
comp 11/10/16; comp 7/28/22; am and comp 3/8/25]
(Auth: HRS §§431:2-201, 431:4A-104) (Imp: HRS
§431:4A-101)
§16-168-5 Credit for reinsurance; reinsurer
domiciled in another state. (a) Pursuant to section
431:4A-101(c), HRS, the commissioner shall allow
credit for reinsurance ceded by a domestic insurer to
an assuming insurer which as of the date of the ceding
insurer's statutory financial statement:
(1)
Is domiciled in (or, in the case of a United
States branch of an alien assuming insurer,
is entered through and licensed in) a state
which employs standards regarding credit for
reinsurance substantially similar to those
applicable under article 4A of chapter 431,
HRS, and this chapter;
(2)
Maintains a surplus as regards policyholders
in an amount not less than $20,000,000; and
(3)
Files a properly executed Form AR 1 with the
commissioner as evidence of its submission
to this State's authority to examine its
books and records.
(b)
The provisions of this section relating to
surplus as regards policyholders shall not apply to
reinsurance ceded and assumed pursuant to pooling
arrangements among insurers in the same holding
company system. As used in this section,
"substantially similar" standards means credit for
reinsurance standards which the commissioner
§16-168-6
168-5
determines equal or exceed the standards of article 4A
of chapter 431, HRS, and this chapter. [Eff 1/25/97;
am and comp 11/10/16; comp 7/28/22; comp 3/8/25]
(Auth: HRS §§431:2-201, 431:4A-104) (Imp: HRS
§431:4A-101)
§16-168-6 Credit for reinsurance; reinsurers
maintaining trust funds. (a) Pursuant to section
431:4A-101(d), HRS, the commissioner shall allow
credit for reinsurance ceded by a domestic insurer to
an assuming insurer which, as of the date of the
ceding insurer's statutory financial statement,
maintains a trust fund in an amount prescribed below
in a qualified United States financial institution as
defined in section 431:4A-103(b), HRS, for the payment
of the valid claims of its United States policyholders
and ceding insurers, their assigns, and successors in
interest. The assuming insurer shall report annually
to the commissioner substantially the same information
as that required to be reported on the National
Association of Insurance Commissioners ("NAIC") annual
statement form by licensed insurers, to enable the
commissioner to determine the sufficiency of the trust
fund.
(b)
The following requirements apply to the
following categories of assuming insurer:
(1)
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 business written
in the United States, and, in addition, a
trusteed surplus of not less than
$20,000,000, except as provided in paragraph
(2) of this subsection.
(2)
At any time after the assuming insurer has
permanently discontinued underwriting new
business secured by the trust for at least
three full years, the commissioner with
principal regulatory oversight of the trust
may authorize a reduction in the required
§16-168-6
168-6
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 per
cent of the assuming insurer’s liabilities
attributable to reinsurance ceded by U.S.
ceding insurers covered by the trust.
(3)
Notwithstanding the other provisions of this
chapter, the trust fund for a group of
individual unincorporated underwriters shall
consist of funds in trust in an amount not
less than the:
(A)
Respective underwriters’ several
liabilities attributable to business
ceded by United States domiciled ceding
insurers to any underwriter of the
group for reinsurance ceded under
reinsurance agreements with an
inception, amendment, or renewal date
on or after January 1, 1993; or
(B)
Several insurance and reinsurance
liabilities attributable to business
written in the United States for
reinsurance ceded under reinsurance
agreements with an inception date on or
before December 31, 1992 and not
amended or renewed after that date.
In addition, the group shall maintain a
trusteed surplus of which $100,000,000 shall
§16-168-6
168-7
be held jointly for the benefit of the
United States domiciled ceding insurers of
any member of the group for all the years of
account. 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. The group, within
ninety days after its financial statements
are due to be filed with the group’s
domiciliary regulator, shall provide to the
commissioner an annual certification by the
group's domiciliary regulator of the
solvency of each underwriter member of the
group, or, if a certification is
unavailable, a financial statement prepared
by independent public accountants of each
underwriter member of the group.
(4)
The trust fund for a group of incorporated
insurers under common administration, whose
members possess aggregate policyholders
surplus of $10,000,000,000 (calculated and
reported in substantially the same manner as
prescribed by the annual statement
instructions and Accounting Practices and
Procedures Manual of the National
Association of Insurance Commissioners) and
which has continuously transacted an
insurance business outside the United States
for at least three years immediately prior
to making application for accreditation,
shall consist of funds in trust in an amount
not less than the assuming insurers'
liabilities attributable to business ceded
by United States ceding insurers to any
members of the group pursuant to reinsurance
contracts issued in the name of such group.
In addition, the group shall maintain a
joint trusteed surplus of which $100,000,000
shall be held jointly for the benefit of
§16-168-6
168-8
United States ceding insurers of any member
of the group. The group shall file a
properly executed Form AR-1 as evidence of
the submission to this State's authority to
examine the books and records of any of its
members and shall certify that any member
examined will bear the expense of any such
examination. The group, within ninety days
after its financial statements are due to be
filed with the group’s domiciliary
regulator, shall provide to the commissioner
an annual certification by the members'
domiciliary regulators of the solvency of
each underwriter member of the group and
financial statements prepared by independent
public accountants of each underwriter
member of the group.
(c)
The trust shall be established in a form
approved by the commissioner and in compliance with
section 431:4A-101, HRS, and this section.
(1)
The trust instrument shall provide that:
(A)
Contested claims shall be valid and
enforceable out of funds in trust to
the extent remaining unsatisfied thirty
days after entry of the final order of
any court of competent jurisdiction in
the United States;
(B)
Legal title to the assets of the trust
shall be vested in the trustee for the
benefit of the grantor's United States
policyholders and ceding insurers,
their assigns, and successors in
interest;
(C)
The trust shall be subject to
examination as determined by the
commissioner;
(D)
The trust shall remain in effect for as
long as the assuming insurer, or any
member or former member of a group of
insurers, shall have outstanding
obligations under reinsurance
agreements subject to the trust;
§16-168-6
168-9
(E)
No later than February 28 of each year
the trustees of the trust shall report
to the commissioner in writing setting
forth the balance in the trust and
listing the trust's investments at the
preceding year end, and shall certify
the date of termination of the trust,
if so planned, or certify that the
trust shall not expire prior to the
next following December 31; and
(F)
No amendment to the trust shall be
effective unless reviewed and approved
in advance by the commissioner.
(2)
Notwithstanding any other provisions in the
trust instrument:
(A)
If the trust fund is inadequate because
it contains an amount less than the
amount required by this subsection, 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 over the trust or
other designated receiver all of the
assets of the trust fund;
(B)
The assets shall be distributed by, and
claims shall be filed with and valued
by, the commissioner with regulatory
oversight over the trust in accordance
with the laws of the state in which the
trust is domiciled applicable to the
liquidation of domestic insurance
companies;
(C)
If the commissioner with regulatory
oversight over the trust determines
§16-168-6
168-10
that the assets of the trust fund, or
any part thereof, are not necessary to
satisfy the claims of the United States
beneficiaries of the trust, the
commissioner shall return the assets,
or any part thereof, to the trustee for
distribution in accordance with the
trust agreement; and
(D)
The grantor shall waive any right
otherwise available to it under United
States law that is inconsistent with
this paragraph.
(d)
For purposes of this section, the term
“liabilities” means the assuming insurer’s gross
liabilities attributable to reinsurance ceded by
United States domiciled insurers excluding liabilities
that are otherwise secured by acceptable means and
shall include:
(1)
For business ceded by domestic insurers
authorized to write accident and health and
property and casualty insurance:
(A)
Losses and allocated loss expenses paid
by the ceding insurer recoverable from
the assuming insurer;
(B)
Reserves for losses reported and
outstanding;
(C)
Reserves for losses incurred but not
reported;
(D)
Reserves for allocated loss expenses;
and
(E)
Unearned premiums.
(2)
For business ceded by domestic insurers
authorized to write life, health, and
annuity insurance:
(A)
Aggregate reserves for life policies
and contracts reduced by policy loans
and net due and deferred premiums;
(B)
Aggregate reserves for accident and
health policies;
(C)
Deposit funds and other liabilities
without life or disability
contingencies; and
§16-168-6
168-11
(D)
Liabilities for policy and contract
claims.
(e)
Assets deposited in trusts established
pursuant to section 431:4A-101, HRS, and this section
shall be valued according to their current fair market
value and shall consist only of cash in United States
dollars, certificates of deposit issued by a qualified
United States financial institution, as defined in
section 431:4A-103(b), HRS, clean, irrevocable,
unconditional, and “evergreen” letters of credit
issued or confirmed by a qualified United States
financial institution, and investments of the type
specified in this subsection. Investments in or
issued by an entity controlling, controlled by, or
under common control with either the grantor or
beneficiary of the trust shall not exceed five per
cent of total investments. In addition, no more than
twenty per cent of the total of the investments in the
trust may be foreign investments authorized under
paragraph (1)(E), (3), (6)(B), or (7), and no more
than ten per cent of the total of the investments in
the trust may be securities denominated in foreign
currencies. For purposes of applying the preceding
sentence, a depository receipt denominated in United
States dollars and representing rights conferred by a
foreign security shall be classified as a foreign
investment denominated in a foreign currency. The
assets of a trust established to satisfy the
requirements of section 431:4A-101, HRS, shall be
invested only as follows:
(1)
Government obligations that are not in
default as to principal or interest, that
are valid and legally authorized, and that
are issued, assumed, or guaranteed by:
(A)
The United States or by any agency or
instrumentality of the United States;
(B)
A state of the United States;
(C)
A territory, possession, or other
governmental unit of the United States;
(D)
An agency or instrumentality of a
governmental unit referred to in
subparagraphs (B) and (C) if the
§16-168-6
168-12
obligations shall be by law payable, as
to both principal and interest, from:
(i)
Taxes levied or by law required
to be levied; or
(ii)
Adequate special revenues
pledged, or otherwise
appropriated or by law required
to be provided, for making these
payments, but shall not be
obligations eligible for
investment under this paragraph
if payable solely out of special
assessments on properties
benefited by local improvements;
or
(E)
The government of any other country
that is a member of the Organization
for Economic Cooperation and
Development and whose government
obligations are rated A or higher, or
the equivalent, by a rating agency
recognized by the Securities Valuation
Office of the National Association of
Insurance Commissioners;
(2)
Obligations that are issued in the United
States, or that are dollar denominated and
issued in a non-United States market, by a
solvent United States institution other than
an insurance company or that are assumed or
guaranteed by a solvent United States
institution other than an insurance company
and that are not in default as to principal
or interest if the obligations:
(A)
Are rated A or higher (or the
equivalent) by a securities rating
agency recognized by the Securities
Valuation Office of the National
Association of Insurance Commissioners,
or, if not so rated, are similar in
structure and other material respects
to other obligations of the same
institution that are so rated;
§16-168-6
168-13
(B)
Are insured by at least one authorized
insurer (other than the investing
insurer or a parent, subsidiary, or
affiliate of the investing insurer)
licensed to insure obligations in this
State, and, after considering the
insurance, are rated AAA (or the
equivalent) by a securities rating
agency recognized by the Securities
Valuation Office of the National
Association of Insurance Commissioners;
or
(C)
Have been designated as Class One or
Class Two by the Securities Valuation
Office of the National Association of
Insurance Commissioners;
(3)
Obligations issued, assumed, or guaranteed
by a solvent non-United States institution
chartered in a country that is a member of
the Organization for Economic Cooperation
and Development or obligations of United
States corporations issued in a non-United
States currency, provided that in either
case the obligations are rated A or higher,
or the equivalent, by a rating agency
recognized by the Securities Valuation
Office of the National Association of
Insurance Commissioners;
(4)
An investment made pursuant to the
provisions of paragraph (1), (2), or (3)
shall be subject to the following additional
limitations:
(A)
An investment in or loan upon the
obligations of an institution other
than an institution that issues
mortgage-related securities shall not
exceed five per cent of the assets of
the trust;
(B)
An investment in any one mortgage-
related security shall not exceed five
per cent of the assets of the trust;
§16-168-6
168-14
(C)
The aggregate total investment in
mortgage-related securities shall not
exceed twenty-five per cent of the
assets of the trust; and
(D)
Preferred or guaranteed shares issued
or guaranteed by a solvent United
States institution are permissible
investments if all of the institution’s
obligations are eligible as investments
under paragraphs (2)(A) and (2)(C), but
shall not exceed two per cent of the
assets of the trust;
(5)
As used in this chapter:
(A)
“Mortgage-related security” means an
obligation that is rated AA or higher,
or the equivalent, by a securities
rating agency recognized by the
Securities Valuation Office of the
National Association of Insurance
Commissioners and that either:
(i)
Represents ownership of one or
more promissory notes or
certificates of interest or
participation in the notes,
(including any rights designed
to assure servicing of, or the
receipt or timeliness of receipt
by, the holders of the notes,
certificates, or participation
of amounts payable under, the
notes, certificates, or
participation), that are
directly secured by a first lien
on a single parcel of real
estate, including stock
allocated to a dwelling unit in
a residential cooperative
housing corporation, upon which
is located a dwelling or mixed
residential and commercial
structure;
§16-168-6
168-15
(ii)
Represents ownership of one or
more promissory notes or
certificates of interest or
participation in the notes,
(including any rights designed
to assure servicing of, or the
receipt or timeliness of receipt
by, the holders of the notes,
certificates, or participation
of amounts payable under, the
notes, certificates, or
participation), that are
directly secured by a first lien
on a residential manufactured
home as defined in 42 United
States Code section 5402(6),
whether the manufactured home is
considered real or personal
property under the laws of the
state in which it is located and
were originated by a savings and
loan association, savings bank,
commercial bank, credit union,
insurance company, or similar
institution that is supervised
and examined by a federal or
state housing authority, or by a
financial institution or
mortgagee approved by the
Secretary of Housing and Urban
Development pursuant to 12
United States Code section 1703,
1709, or 1715-b; or
(iii)
Is secured by one or more
promissory notes or certificates
of deposit or participations in
the notes (with or without
recourse to the insurer of the
notes) and, by its terms,
provides for payments of
principal in relation to
payments, reasonable projections
§16-168-6
168-16
of payments, or notes meeting
the requirements of clause (i);
and
(B)
“Promissory note,” when used in
connection with a manufactured home,
shall also include a loan, advance, or
credit sale as evidenced by a retail
installment sales contract or other
instrument;
(6)
Equity interests:
(A)
Investments in common shares or
partnership interests of a solvent
United States institution are
permissible if:
(i)
Its obligations and preferred
shares, if any, are eligible as
investments under this
subsection; and
(ii)
The equity interests of the
institution, other than an
insurance company, are
registered on a national
securities exchange as provided
in the Securities Exchange Act
of 1934, 15 United States Code
sections 78a to 78kk, or
otherwise registered pursuant to
the Securities Exchange Act of
1934. If otherwise registered,
price quotations shall be
furnished through a nationwide
automated quotations system
approved by the Financial
Industry Regulatory Authority or
successor organization. A trust
shall not invest in equity
interests under this paragraph
an amount exceeding one per cent
of the assets of the trust even
though the equity interests are
not so registered and are not
issued by an insurance company;
§16-168-6
168-17
(B)
Investments in common shares of a
solvent institution organized under the
laws of a country that is a member of
the Organization for Economic
Cooperation and Development, if:
(i)
All its obligations are rated A
or higher, or the equivalent, by
a rating agency recognized by
the Securities Valuation Office
of the National Association of
Insurance Commissioners; and
(ii)
The equity interests of the
institution are registered on a
securities exchange regulated by
the government of a country that
is a member of the Organization
for Economic Cooperation and
Development;
(C)
An investment in or loan upon any one
institution’s outstanding equity
interests shall not exceed one per cent
of the assets of the trust. The cost
of an investment in equity interests
made pursuant to this paragraph, when
added to the aggregate cost of other
investments in equity interests then
held pursuant to this paragraph, shall
not exceed ten per cent of the assets
in the trust;
(7)
Obligations issued, assumed, or guaranteed
by a multinational development bank,
provided the obligations are rated A or
higher, or the equivalent, by a rating
agency recognized by the Securities
Valuation Office of the National Association
of Insurance Commissioners;
(8)
Investment companies:
(A)
Securities of an investment company
registered pursuant to the Investment
Company Act of 1940, 15 United States
Code section 80a, are permissible
investments if the investment company:
§16-168-6
168-18
(i)
Invests at least ninety per cent
of its assets in the types of
securities that qualify as an
investment under paragraph (1),
(2), or (3) or invests in
securities that are determined
by the commissioner to be
substantively similar to the
types of securities set forth in
paragraph (1), (2), or (3); or
(ii)
Invests at least ninety per cent
of its assets in the types of
equity interests that qualify as
an investment under paragraph
(6)(A);
(B)
Investments made by a trust in
investment companies under this
paragraph shall not exceed the
following limitations:
(i)
An investment in an investment
company qualifying under
subparagraph (A)(i) shall not
exceed ten per cent of the
assets in the trust and the
aggregate amount of investment
in qualifying investment
companies shall not exceed
twenty-five per cent of the
assets in the trust; and
(ii)
Investments in an investment
company qualifying under
subparagraph (A)(ii) shall not
exceed five per cent of the
assets in the trust and the
aggregate amount of investment
in qualifying investment
companies shall be included when
calculating the permissible
aggregate value of equity
interests pursuant to paragraph
(6)(A);
(9)
Letters of credit:
§16-168-7
168-19
(A)
In order for a letter of credit to
qualify as an asset of the trust, the
trustee shall have the right and the
obligation pursuant to the deed of
trust, or some other binding agreement
as duly approved by the commissioner,
to immediately draw down the full
amount of the letter of credit and hold
the proceeds in trust for the
beneficiaries of the trust if the
letter of credit will otherwise expire
without being renewed or replaced;
(B)
The trust agreement shall provide that
the trustee shall be liable for its
negligence, wilful misconduct, or lack
of good faith. The failure of the
trustee to draw against the letter of
credit in circumstances where the draw
would be required shall be deemed to be
negligence, wilful misconduct, or both.
(f)
A specific security provided to a ceding
insurer by an assuming insurer pursuant to section 16-
168-8 shall be applied, until exhausted, to the
payment of liabilities of the assuming insurer to the
ceding insurer holding the specific security prior to,
and as a condition precedent for, presentation of a
claim by the ceding insurer for payment by a trustee
of a trust established by the assuming insurer
pursuant to this section. [Eff 1/25/97; am and comp
11/10/16; am and comp 7/28/22; am and comp 3/8/25]
(Auth: HRS §§431:2-201, 431:4A-104) (Imp: HRS
§§431:4A-101, 431:4A-103)
§16-168-7 Credit for reinsurance; certified
reinsurers. (a) Pursuant to section 431:4A-101(e),
HRS, the commissioner shall allow credit for
reinsurance ceded by a domestic insurer to an assuming
insurer that has been certified as a reinsurer in this
State at all times for which statutory financial
statement credit for reinsurance is claimed under this
§16-168-7
168-20
section. The credit allowed shall be based upon the
security held by or on behalf of the ceding insurer in
accordance with a rating assigned to the certified
reinsurer by the commissioner. The security shall be
in a form consistent with the provisions of sections
431:4A-101(e) and 431:4A-102, HRS, and section 16-168-
10, 16-168-11, or 16-168-12, of this chapter. The
amount of security required in order for full credit
to be allowed shall correspond with the following
requirements:
(1)
Ratings
Security Required
Secure – 1
Zero per cent
Secure – 2
Ten per cent
Secure – 3
Twenty per cent
Secure – 4
Fifty per cent
Secure – 5
Seventy-five per cent
Vulnerable – 6
One hundred per cent;
(2)
Affiliated reinsurance transactions shall
receive the same opportunity for reduced
security requirements as all other
reinsurance transactions;
(3)
The commissioner shall require the certified
reinsurer to post one hundred per cent
security for the benefit of the ceding
insurer or its estate upon the entry of an
order of rehabilitation, liquidation, or
conservation against the ceding insurer;
(4)
In order to facilitate the prompt payment of
claims, a certified reinsurer shall not be
required to post security for catastrophe
recoverables for a period of one year from
the date of the first instance of a
liability reserve entry by the ceding
company as a result of a loss from a
catastrophic occurrence as recognized by the
commissioner. The one year deferral period
is contingent upon the certified reinsurer
continuing to pay claims in a timely manner.
Reinsurance recoverables for only the
following lines of business as reported on
the National Association of Insurance
Commissioners annual financial statement
§16-168-7
168-21
related specifically to the catastrophic
occurrence will be included in the deferral:
(A)
Line 1: Fire;
(B)
Line 2: Allied lines;
(C)
Line 3: Farmowners multiple peril;
(D)
Line 4: Homeowners multiple peril;
(E)
Line 5: Commercial multiple peril;
(F)
Line 9: Inland marine;
(G)
Line 12: Earthquake; or
(H)
Line 21: Auto physical damage;
(5)
Credit for reinsurance under this section
shall apply only to reinsurance contracts
entered into or renewed on or after the
effective date of the certification of the
assuming insurer. A new reinsurance
contract or any reinsurance contract entered
into prior to the effective date of the
certification of the assuming insurer that
is subsequently amended after the effective
date of the certification of the assuming
insurer covering any risk for which
collateral was provided previously shall
only be subject to this section with respect
to losses incurred and reserves reported
from and after the effective date of the
amendment or new contract; and
(6)
Nothing in this section shall prohibit the
parties to a reinsurance agreement from
agreeing to provisions establishing security
requirements that exceed the minimum
security requirements established for
certified reinsurers under this section.
(b)
Certification procedure.
(1)
The commissioner shall post notice on the
insurance division’s website promptly upon
receipt of any application for
certification, including instructions on how
members of the public may respond to the
application. The commissioner may not take
final action on the application until at
least thirty days after posting the notice
required by this paragraph;
§16-168-7
168-22
(2)
The commissioner shall issue written notice
to an assuming insurer that has made
application and been approved as a certified
reinsurer. Included in the notice shall be
the rating assigned the certified reinsurer
in accordance with subsection (a). The
commissioner shall publish a list of all
certified reinsurers and their ratings;
(3)
In order to be eligible for certification,
the assuming insurer shall meet the
following requirements:
(A)
The assuming insurer must be domiciled
and licensed to transact insurance or
reinsurance in a qualified jurisdiction
as determined by the commissioner
pursuant to subparagraph (C);
(B)
The assuming insurer must maintain
capital and surplus, or its equivalent,
of no less than $250,000,000 calculated
in accordance with paragraph (4)(H).
This requirement may also be satisfied
by an association including
incorporated and individual
unincorporated underwriters having
minimum capital and surplus equivalents
(net of liabilities) of at least
$250,000,000 and a central fund
containing a balance of at least
$250,000,000;
(C)
The assuming insurer must maintain
financial strength ratings from two or
more rating agencies deemed acceptable
by the commissioner. These ratings
shall be based on interactive
communication between the rating agency
and the assuming insurer and shall not
be based solely on publicly available
information. These financial strength
ratings will be one factor used by the
commissioner in determining the rating
that is assigned to the assuming
§16-168-7
168-23
insurer. Acceptable rating agencies
include the following:
(i)
Standard & Poor’s (“S&P”);
(ii)
Moody’s Investors Service
(“Moody’s”);
(iii)
Fitch Ratings (“Fitch”);
(iv)
A.M. Best Company (“Best”); or
(v)
Any other Nationally Recognized
Statistical Rating Organization;
and
(D)
The certified reinsurer must comply
with any other requirements reasonably
imposed by the commissioner;
(4)
Each certified reinsurer shall be rated on a
legal entity basis, with due consideration
being given to the group rating where
appropriate, except that an association
including incorporated and individual
unincorporated underwriters that has been
approved to do business as a single
certified reinsurer may be evaluated on the
basis of its group rating. Factors that may
be considered as part of the evaluation
process include, but are not limited to, the
following:
(A)
The certified reinsurer’s financial
strength rating from an acceptable
rating agency. The maximum rating that
a certified reinsurer may be assigned
will correspond to its financial
strength rating as outlined in the
table below. The commissioner shall
use the lowest financial strength
rating received from an approved rating
agency in establishing the maximum
rating of a certified reinsurer. A
failure to obtain or maintain at least
two financial strength ratings from
acceptable rating agencies will result
in loss of eligibility for
certification;
§16-168-7
168-24
Certified Reinsurer’s Financial Strength Rating (7/18/22)
Ratings
Best
S&P
Moody’s
Fitch
Secure – 1
A++
AAA
Aaa
AAA
Secure – 2
A+
AA+, AA, AA-
Aa1, Aa2, Aa3
AA+, AA, AA-
Secure – 3
A
A+, A
A1, A2
A+, A
Secure – 4
A-
A-
A3
A-
Secure – 5
B++, B+
BBB+, BBB,
BBB-
Baa1, Baa2,
Baa3
BBB+, BBB,
BBB-
Vulnerable
– 6
B, B-
C++, C+,
C, C-, D,
E, F
BB+, BB, BB-,
B+, B, B-, CCC,
CC, C, D, R
Ba1, Ba2, Ba3,
B1, B2, B3,
Caa, Ca, C
BB+, BB, BB-,
B+, B, B-,
CCC+, CC,
CCC-,
DD
(B)
The business practices of the certified
reinsurer in dealing with its ceding
insurers, including its record of
compliance with reinsurance contractual
terms and obligations;
(C)
For certified reinsurers domiciled in
the United States, a review of the most
recent applicable National Association
of Insurance Commissioners Annual
Statement Blank, either Schedule F (for
property/casualty reinsurers) or
Schedule S (for life and health
reinsurers);
(D)
For certified reinsurers not domiciled
in the United States, a review annually
of Form CR-F dated January 2012 (for
property/casualty reinsurers) or Form
CR-S dated January 2012 (for life and
health reinsurers) (attached to and
incorporated by reference into this
chapter);
(E)
The reputation of the certified
reinsurer for prompt payment of claims
under reinsurance agreements based on
an analysis of ceding insurers’
Schedule F reporting of overdue
§16-168-7
168-25
reinsurance recoverables, including the
proportion of obligations that are more
than ninety days past due or are in
dispute, with specific attention given
to obligations payable to companies
that are in administrative supervision
or receivership;
(F)
Regulatory actions against the
certified reinsurer;
(G)
The report of the independent auditor
on the financial statements of the
insurance enterprise on the basis
described in subparagraph (H);
(H)
For certified reinsurers not domiciled
in the United States, audited financial
statements, regulatory filings, and
actuarial opinion as filed with the
non-United States jurisdiction
supervisor, with a translation into
English. Upon the initial application
for certification, the commissioner
will consider audited financial
statements for the last two years filed
with its non-United States jurisdiction
supervisor. Audited financial
statements include:
(i)
Audited United States Generally
Accepted Accounting Principles
basis financial statements;
(ii)
Audited International Financial
Reporting Standards basis
financial statements that
include an audited footnote
reconciling equity and net
income to a United States
Generally Accepted Accounting
Principles basis; or
(iii)
With the permission of the
commissioner, audited
International Financial
Reporting Standards statements
with reconciliation to United
§16-168-7
168-26
States Generally Accepted
Accounting Principles financial
statements certified by an
officer of the company;
(I)
The liquidation priority of obligations
to a ceding insurer in the certified
reinsurer’s domiciliary jurisdiction in
the context of an insolvency
proceeding;
(J)
A certified reinsurer’s participation
in any solvent scheme of arrangement,
or similar procedure, which involves
United States ceding insurers. The
commissioner shall receive prior notice
from a certified reinsurer that
proposes participation by the certified
reinsurer in a solvent scheme of
arrangement; and
(K)
Any other information deemed relevant
by the commissioner.
(5)
Based on the analysis conducted under
paragraph (4)(E) of a certified reinsurer’s
reputation for prompt payment of claims, the
commissioner may make appropriate
adjustments in the security the certified
reinsurer is required to post to protect its
liabilities to U.S. ceding insurers,
provided that the commissioner, at a
minimum, shall increase the security the
certified reinsurer is required to post by
one rating level under paragraph (4)(A) if
the commissioner finds that:
(A)
More than fifteen per cent of the
certified reinsurer’s ceding insurance
clients have overdue reinsurance
recoverables on paid losses of ninety
days or more which are not in dispute
and which exceed $100,000 for each
cedent; or
(B)
The aggregate amount of reinsurance
recoverables on paid losses which are
not in dispute that are overdue by
§16-168-7
168-27
ninety days or more exceeds
$50,000,000;
(6)
The assuming insurer must submit a properly
executed Form CR-1 dated January 2012
(attached to and incorporated by reference
into this chapter) as evidence of its
submission to the jurisdiction of this
State, appointment of the commissioner as an
agent for service of process in this State,
and agreement to provide security for one
hundred per cent of the assuming insurer’s
liabilities attributable to reinsurance
ceded by United States ceding insurers if it
resists enforcement of a final United States
judgment. The commissioner shall not
certify any assuming insurer that is
domiciled in a jurisdiction that the
commissioner has determined does not
adequately and promptly enforce final United
States judgments or arbitration awards;
(7)
The certified reinsurer 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. All
information submitted by certified
reinsurers that is not otherwise public
information subject to disclosure shall be
exempted from disclosure under chapter 92F,
HRS, and shall be withheld from public
disclosure. The applicable information
filing requirements are as follows:
(A)
Notification within ten days of any
regulatory actions taken against the
certified reinsurer, any change in the
provisions of its domiciliary license,
or any change in rating by an approved
rating agency, including a statement
describing the changes and the reasons
therefor;
(B)
Annually, Form CR-F or CR-S as
applicable;
§16-168-7
168-28
(C)
Annually, the report of the independent
auditor on the financial statements of
the insurance enterprise on the basis
described in subparagraph (D);
(D)
Annually, the most recent audited
financial statements as provided for in
paragraph (4)(H), regulatory filings,
and actuarial opinion as filed with the
certified reinsurer’s supervisor, with
a translation into English. Upon the
initial certification, audited
financial statements for the last two
years filed with the certified
reinsurer’s supervisor;
(E)
At least annually, an updated list of
all disputed and overdue reinsurance
claims regarding reinsurance assumed
from United States domestic ceding
insurers;
(F)
A certification from the certified
reinsurer’s domestic regulator that the
certified reinsurer is in good standing
and maintains capital in excess of the
jurisdiction’s highest regulatory
action level; and
(G)
Any other information that the
commissioner may reasonably require;
(8)
Change in rating or revocation of
certification.
(A)
In the case of a downgrade by a rating
agency or other disqualifying
circumstance, the commissioner, upon
written notice, shall assign a new
rating to the certified reinsurer in
accordance with the requirements of
paragraph (4)(A);
(B)
The commissioner may suspend, revoke,
or otherwise modify a certified
reinsurer’s certification at any time
if the certified reinsurer fails to
meet its obligations or security
requirements under this section, or, if
§16-168-7
168-29
other financial or operating results of
the certified reinsurer, or documented
significant delays in payment by the
certified reinsurer, lead the
commissioner to reconsider the
certified reinsurer’s ability or
willingness to meet its contractual
obligations;
(C)
If the rating of a certified reinsurer
is upgraded by the commissioner, the
certified reinsurer may meet the
security requirements applicable to its
new rating on a prospective basis, but
the commissioner shall require the
certified reinsurer to post security
under the previously applicable
security requirements as to all
contracts in force on or before the
effective date of the upgraded rating.
If the rating of a certified reinsurer
is downgraded by the commissioner, the
commissioner shall require the
certified reinsurer to meet the
security requirements applicable to its
new rating for all business it has
assumed as a certified reinsurer;
(D)
Upon revocation of the certification of
a certified reinsurer by the
commissioner, the assuming insurer
shall be required to post security in
accordance with section 16-168-9 in
order for the ceding insurer to
continue to take credit for reinsurance
ceded to the assuming insurer. If
funds continue to be held in trust in
accordance with section 16-168-6, the
commissioner may allow additional
credit equal to the ceding insurer’s
pro rata share of such funds which
shall be discounted to reflect the risk
of uncollectibility and anticipated
expenses of trust administration.
§16-168-7
168-30
Notwithstanding the change of a
certified reinsurer’s rating or
revocation of its certification, a
domestic insurer that has ceded
reinsurance to that certified reinsurer
may not be denied credit for
reinsurance for a period of three
months for all reinsurance ceded to
that certified reinsurer unless the
reinsurance is found by the
commissioner to be at high risk of
uncollectibility.
(c)
Qualified jurisdictions.
(1)
If, upon conducting an evaluation under this
section with respect to the reinsurance
supervisory system of any non-United States
assuming insurer, the commissioner
determines that the jurisdiction qualifies
to be recognized as a qualified
jurisdiction, the commissioner shall publish
notice and evidence of such recognition in
an appropriate manner. The commissioner may
establish a procedure to withdraw
recognition of those jurisdictions that are
no longer qualified;
(2)
In order to determine whether the
domiciliary jurisdiction of a non-United
States assuming insurer is eligible to be
recognized as a qualified jurisdiction, the
commissioner shall evaluate the reinsurance
supervisory system of the non-United States
jurisdiction, both initially and on an
ongoing basis, and consider the rights,
benefits, and the extent of reciprocal
recognition afforded by the non-United
States jurisdiction to reinsurers licensed
and domiciled in the United States. The
commissioner shall determine the appropriate
approach for evaluating the qualifications
of the non-United States jurisdictions, and
create and publish a list of jurisdictions
whose reinsurers may be approved by the
§16-168-7
168-31
commissioner as eligible for certification.
A qualified jurisdiction must agree to share
information and cooperate with the
commissioner with respect to all certified
reinsurers domiciled within that
jurisdiction. Additional factors to be
considered in determining whether to
recognize a qualified jurisdiction, in the
discretion of the commissioner, include but
are not limited to the following:
(A)
The framework under which the assuming
insurer is regulated;
(B)
The structure and authority of the
domiciliary regulator with regard to
solvency regulation requirements and
financial surveillance;
(C)
The substance of financial and
operating standards for assuming
insurers in the domiciliary
jurisdiction;
(D)
The form and substance of financial
reports required to be filed or made
publicly available by reinsurers in the
domiciliary jurisdiction and the
accounting principles used;
(E)
The domiciliary regulator’s willingness
to cooperate with United States
regulators in general and the
commissioner in particular;
(F)
The history of performance by assuming
insurers in the domiciliary
jurisdiction;
(G)
Any documented evidence of substantial
problems with the enforcement of final
United States judgments in the
domiciliary jurisdiction;
(H)
Any relevant international standards or
guidance with respect to mutual
recognition of reinsurance supervision
adopted by the International
Association of Insurance Supervisors or
successor organization; and
§16-168-7
168-32
(I)
Any other matters deemed relevant by
the commissioner.
(3)
A list of qualified jurisdictions shall be
published through the National Association
of Insurance Commissioners 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
with respect to the criteria provided under
paragraphs (2)(A) to (2)(I) of this section;
(4)
United States jurisdictions that meet the
requirements for accreditation under the
National Association of Insurance
Commissioners financial standards and
accreditation program shall be recognized as
qualified jurisdictions; and
(5)
A jurisdiction will not be considered to be
a qualified jurisdiction if the commissioner
has determined that it does not adequately
and promptly enforce final United States
judgments or arbitration awards.
(d)
Recognition of certification issued by a
National Association of Insurance Commissioners
accredited jurisdiction.
(1)
If an applicant for certification has been
certified as a reinsurer in a National
Association of Insurance Commissioners
accredited jurisdiction, the commissioner
has the discretion to defer to that
jurisdiction’s certification, and to defer
to the rating assigned by that jurisdiction,
if the assuming insurer submits a properly
executed Form CR-1 and such additional
information as the commissioner requires.
The assuming insurer shall be considered to
be a certified reinsurer in this State;
(2)
Any change in the certified reinsurer’s
status or rating in the other jurisdiction
§16-168-7
168-33
shall apply automatically in this State as
of the date it takes effect in the other
jurisdiction. The certified reinsurer shall
notify the commissioner of any change in its
status or rating within ten days after
receiving notice of the change;
(3)
The commissioner may withdraw recognition of
the other jurisdiction’s rating at any time
and assign a new rating in accordance with
subsection (b)(8); and
(4)
The commissioner may withdraw recognition of
the other jurisdiction’s certification at
any time with written notice to the
certified reinsurer. Unless the
commissioner suspends or revokes the
certified reinsurer’s certification in
accordance with subsection (b)(8), the
certified reinsurer’s certification shall
remain in good standing in this State for a
period of three months. The three month
period shall be extended if additional time
is necessary to consider the assuming
insurer’s application for certification in
this State.
(e)
Mandatory funding clause. In addition to the
clauses required under section 16-168-13 of this
chapter, reinsurance contracts entered into or renewed
under this section shall include a proper funding
clause which requires the certified reinsurer to
provide and maintain security in an amount sufficient
to avoid the imposition of any financial statement
penalty on the ceding insurer under this section for
reinsurance ceded to the certified reinsurer.
(f)
The commissioner shall comply with all
reporting and notification requirements that may be
established by the National Association of Insurance
Commissioners with respect to certified reinsurers and
qualified jurisdictions. [Eff and comp 11/10/16; am
and comp 7/28/22; am and comp 3/8/25] (Auth: HRS
§§431:2-201, 431:4A-104) (Imp: HRS §431:4A-101)
§16-168-7.1
168-34
§16-168-7.1 Credit for reinsurance; reciprocal
jurisdictions. (a) Pursuant to section 431:4A-101(f),
HRS, the commissioner shall allow credit for
reinsurance ceded by a domestic insurer to an assuming
insurer that is licensed to write reinsurance by, and
has its head office or is domiciled in, a reciprocal
jurisdiction, and which meets the other requirements
of this regulation.
(b)
A “reciprocal jurisdiction” is a
jurisdiction, as designated by the commissioner
pursuant to subsection (d), that meets one of the
following:
(1)
A non-United States jurisdiction that is
subject to an in-force covered agreement
with the United States, each within its
legal authority, or, in the case of a
covered agreement between the United States
and the European Union, is a member state of
the European Union. For purposes of this
subsection, a “covered agreement” is an
agreement entered into pursuant to the Dodd-
Frank Wall Street Reform and Consumer
Protection Act, 31 United States Code
sections 313 and 314, that is currently in
effect or in a period of provisional
application and addresses the elimination,
under specified conditions, of collateral
requirements as a condition for entering
into any reinsurance agreement with a ceding
insurer domiciled in this state or for
allowing the ceding insurer to recognize
credit for reinsurance;
(2)
A United States jurisdiction that meets the
requirements for accreditation under the
National Association of Insurance
Commissioners financial standards and
accreditation program; or
(3)
A qualified jurisdiction, as determined by
the commissioner pursuant to section 431:4A-
101(e)(3), HRS, and section 16-168-7(c),
§16-168-7.1
168-35
which is not otherwise described in
paragraph (1) or (2) of this section and
which the commissioner determines meets all
of the following additional requirements:
(A)
Provides that an insurer which has its
head office or is domiciled in such
qualified jurisdiction shall receive
credit for reinsurance ceded to a
United States-domiciled assuming
insurer in the same manner as credit
for reinsurance is received for
reinsurance assumed by insurers
domiciled in such qualified
jurisdiction;
(B)
Does not require a United States-
domiciled assuming insurer to establish
or maintain a local presence as a
condition for entering into a
reinsurance agreement with any ceding
insurer subject to regulation by the
non-United States jurisdiction or as a
condition to allow the ceding insurer
to recognize credit for such
reinsurance;
(C)
Recognizes the United States state
regulatory approach to group
supervision and group capital, by
providing written confirmation by a
competent regulatory authority, in such
qualified jurisdiction, that insurers
and insurance groups that are domiciled
or maintain their headquarters in this
state or another jurisdiction
accredited by the National Association
of Insurance Commissioners shall be
subject only to worldwide prudential
insurance group supervision including
worldwide group governance, solvency
and capital, and reporting, as
applicable, by the commissioner or the
commissioner of the domiciliary state
and will not be subject to group
§16-168-7.1
168-36
supervision at the level of the
worldwide parent undertaking of the
insurance or reinsurance group by the
qualified jurisdiction; and
(D)
Provides written confirmation by a
competent regulatory authority in such
qualified jurisdiction that information
regarding insurers and their parent,
subsidiary, or affiliated entities, if
applicable, shall be provided to the
commissioner in accordance with a
memorandum of understanding or similar
document between the commissioner and
such qualified jurisdiction, including
but not limited to the International
Association of Insurance Supervisors
Multilateral Memorandum of
Understanding or other multilateral
memoranda of understanding coordinated
by the National Association of
Insurance Commissioners.
(c)
Credit shall be allowed when the reinsurance
is ceded from an insurer domiciled in this state to an
assuming insurer meeting each of the conditions set
forth below:
(1)
The assuming insurer must be licensed to
transact reinsurance by, and have its head
office or be domiciled in, a reciprocal
jurisdiction;
(2)
The assuming insurer must have and maintain
on an ongoing basis minimum capital and
surplus, or its equivalent, calculated on at
least an annual basis as of the preceding
December 31 or at the annual date otherwise
statutorily reported to the reciprocal
jurisdiction, and confirmed as set forth in
subsection (c)(7) according to the
methodology of its domiciliary jurisdiction,
in the following amounts:
(A)
No less than $250,000,000; or
§16-168-7.1
168-37
(B)
If the assuming insurer is an
association, including incorporated and
individual unincorporated underwriters:
(i)
Minimum capital and surplus
equivalents (net of liabilities)
or own funds of the equivalent of
at least $250,000,000; and
(ii)
A central fund containing a
balance of the equivalent of at
least $250,000,000;
(3)
The assuming insurer must have and maintain
on an ongoing basis a minimum solvency or
capital ratio, as applicable, as follows:
(A)
If the assuming insurer has its head
office or is domiciled in a reciprocal
jurisdiction as defined in section
(b)(1), the ratio specified in the
applicable covered agreement;
(B)
If the assuming insurer is domiciled in
a reciprocal jurisdiction as defined in
section (b)(2), a risk-based capital
(RBC) ratio of three hundred per cent
of the authorized control level,
calculated in accordance with the
formula developed by the National
Association of Insurance Commissioners;
or
(C)
If the assuming insurer is domiciled in
a reciprocal jurisdiction as defined in
section (b)(3), after consultation with
the reciprocal jurisdiction and
considering any recommendations
published through the National
Association of Insurance Commissioners
Committee Process, such solvency or
capital ratio as the commissioner
determines to be an effective measure
of solvency.
(4)
The assuming insurer must agree to and
provide adequate assurance, in the form of a
properly executed Form RJ-1 dated January
2012 (attached to and incorporated by
§16-168-7.1
168-38
reference into this chapter), of its
agreement to the following:
(A)
The assuming insurer must agree to
provide prompt written notice and
explanation to the commissioner if it
falls below the minimum requirements
set forth in paragraph (2) or (3), or
if any regulatory action is taken
against it for serious noncompliance
with applicable law;
(B)
The assuming insurer must consent in
writing to the jurisdiction of the
courts of this state and to the
appointment of the commissioner as
agent for service of process:
(i)
The commissioner may also require
that such consent be provided and
included in each reinsurance
agreement under the commissioner’s
jurisdiction; and
(ii)
Nothing in this provision shall
limit or in any way alter the
capacity of parties to a
reinsurance agreement to agree to
alternative dispute resolution
mechanisms, except to the extent
such agreements are unenforceable
under applicable insolvency or
delinquency laws;
(C)
The assuming insurer must consent in
writing to pay all final judgments,
wherever enforcement is sought,
obtained by a ceding insurer, that have
been declared enforceable in the
territory where the judgment was
obtained;
(D)
Each reinsurance agreement must include
a provision requiring the assuming
insurer to provide security in an
amount equal to one hundred per cent of
the assuming insurer’s liabilities
attributable to reinsurance ceded
§16-168-7.1
168-39
pursuant to that agreement if the
assuming insurer resists enforcement of
a final judgment that is enforceable
under the law of the jurisdiction in
which it was obtained or a properly
enforceable arbitration award, whether
obtained by the ceding insurer or by
its legal successor on behalf of its
estate, if applicable;
(E)
The assuming insurer must confirm that
it is not presently participating in
any solvent scheme of arrangement,
which involves this state’s ceding
insurers, and agrees to notify the
ceding insurer and the commissioner and
to provide one hundred per cent
security to the ceding insurer
consistent with the terms of the
scheme, should the assuming insurer
enter into such a solvent scheme of
arrangement. Such security shall be in
a form consistent with the provisions
of sections 431:4A-101(e) and 431:4A-
102, HRS, and section 16-168-10, 16-
168-11, or 16-168-12. For purposes of
this Regulation, the term “solvent
scheme of arrangement” means a foreign
or alien statutory or regulatory
compromise procedure subject to
requisite majority creditor approval
and judicial sanction in the assuming
insurer’s home jurisdiction either to
finally commute liabilities of duly
noticed classed members or creditors of
a solvent debtor, or to reorganize or
restructure the debts and obligations
of a solvent debtor on a final basis,
and which may be subject to judicial
recognition and enforcement of the
arrangement by a governing authority
outside the ceding insurer’s home
jurisdiction; and
§16-168-7.1
168-40
(F)
The assuming insurer must agree in
writing to meet the applicable
information filing requirements as set
forth in paragraph (5) of this section.
(5)
The assuming insurer or its legal successor
must provide, if requested by the
commissioner, on behalf of itself and any
legal predecessors, the following
documentation to the commissioner:
(A)
For the two years preceding entry into
the reinsurance agreement and on an
annual basis thereafter, the assuming
insurer’s annual audited financial
statements, in accordance with the
applicable law of the jurisdiction of
its head office or domiciliary
jurisdiction, as applicable, including
the external audit report;
(B)
For the two years preceding entry into
the reinsurance agreement, the solvency
and financial condition report or
actuarial opinion, if filed with the
assuming insurer’s supervisor;
(C)
Prior to entry into the reinsurance
agreement and not more than semi-
annually thereafter, an updated list of
all disputed and overdue reinsurance
claims outstanding for ninety days or
more, regarding reinsurance assumed
from ceding insurers domiciled in the
United States; and
(D)
Prior to entry into the reinsurance
agreement and not more than semi-
annually thereafter, information
regarding the assuming insurer’s
assumed reinsurance by ceding insurer,
ceded reinsurance by the assuming
insurer, and reinsurance recoverable on
paid and unpaid losses by the assuming
insurer to allow for the evaluation of
the criteria set forth in paragraph (6)
of this section.
§16-168-7.1
168-41
(6)
The assuming insurer must maintain a
practice of prompt payment of claims under
reinsurance agreements. The lack of prompt
payment will be evidenced if any of the
following criteria is met:
(A)
More than fifteen per cent of the
reinsurance recoverables from the
assuming insurer are overdue and in
dispute as reported to the
commissioner;
(B)
More than fifteen per cent of the
assuming insurer’s ceding insurers or
reinsurers have overdue reinsurance
recoverable on paid losses of ninety
days or more which are not in dispute
and which exceed for each ceding
insurer $100,000, or as otherwise
specified in a covered agreement; or
(C)
The aggregate amount of reinsurance
recoverable on paid losses which are
not in dispute, but are overdue by
ninety days or more, exceeds
$50,000,000, or as otherwise specified
in a covered agreement.
(7)
The assuming insurer’s supervisory authority
must confirm to the commissioner on an
annual basis that the assuming insurer
complies with the requirements set forth in
paragraphs (2) and (3) of this section; and
(8)
Nothing in this provision precludes an
assuming insurer from providing the
commissioner with information on a voluntary
basis.
(d)
The commissioner shall timely create and
publish a list of reciprocal jurisdictions.
(1)
A list of reciprocal jurisdictions is
published through the National Association
of Insurance Commissioners Committee Process.
The commissioner’s list shall include any
reciprocal jurisdiction as defined under
section (b)(1) and (2) and shall consider
any other reciprocal jurisdiction included
§16-168-7.1
168-42
on the National Association of Insurance
Commissioners’ list. The commissioner may
approve a jurisdiction that does not appear
on the National Association of Insurance
Commissioners’ list of reciprocal
jurisdictions as provided by applicable law,
regulation, or in accordance with criteria
published through a National Association of
Insurance Commissioners Committee Process;
and
(2)
The commissioner may remove a jurisdiction
from the list of reciprocal jurisdictions
upon a determination that the jurisdiction
no longer meets one or more of the
requirements of a reciprocal jurisdiction,
as provided by applicable law, regulation,
or in accordance with a process published
through the National Association of
Insurance Commissioners Committee Process,
except that the commissioner shall not
remove from the list a reciprocal
jurisdiction as defined under section (b)(1)
and (2). Upon removal of a reciprocal
jurisdiction from this list credit for
reinsurance ceded to an assuming insurer
domiciled in that jurisdiction shall be
allowed, if otherwise allowed pursuant to
article 4A of chapter 431, HRS.
(e)
The commissioner shall timely create and
publish a list of assuming insurers that have
satisfied the conditions set forth in this section and
to which cessions shall be granted credit in
accordance with this section.
(1)
If an National Association of Insurance
Commissioners accredited jurisdiction has
determined that the conditions set forth in
subsection (c) have been met, the
commissioner has the discretion to defer to
that jurisdiction’s determination, and add
such assuming insurer to the list of
assuming insurers to which cessions shall be
granted credit in accordance with this
§16-168-7.1
168-43
subsection. The commissioner may accept
financial documentation filed with another
National Association of Insurance
Commissioners accredited jurisdiction or
with the National Association of Insurance
Commissioners in satisfaction of the
requirements of subsection (c); and
(2)
When requesting that the commissioner defer
to another National Association of Insurance
Commissioners accredited jurisdiction’s
determination, an assuming insurer must
submit a properly executed Form RJ-1 and
additional information as the commissioner
may require. A state that has received such
a request will notify other states through
the National Association of Insurance
Commissioners Committee Process and provide
relevant information with respect to the
determination of eligibility.
(f)
If the commissioner determines that an
assuming insurer no longer meets one or more of the
requirements under this section, the commissioner may
revoke or suspend the eligibility of the assuming
insurer for recognition under this section.
(1)
While an assuming insurer’s eligibility is
suspended, no reinsurance agreement issued,
amended or renewed after the effective date
of the suspension qualifies for credit
except to the extent that the assuming
insurer’s obligations under the contract are
secured in accordance with section 16-168-9;
and
(2)
If an assuming insurer’s eligibility is
revoked, no credit for reinsurance may be
granted after the effective date of the
revocation with respect to any reinsurance
agreements entered into by the assuming
insurer, including reinsurance agreements
entered into prior to the date of
revocation, except to the extent that the
assuming insurer’s obligations under the
contract are secured in a form acceptable to
§16-168-7.1
168-44
the commissioner and consistent with the
provisions of section 16-168-9.
(g)
Before denying statement credit or imposing
a requirement to post security with respect to
subsection of this regulation or adopting any similar
requirement that will have substantially the same
regulatory impact as security, the commissioner shall:
(1)
Communicate with the ceding insurer, the
assuming insurer, and the assuming insurer’s
supervisory authority that the assuming
insurer no longer satisfies one of the
conditions listed in subsection (c);
(2)
Provide the assuming insurer with thirty
days from the initial communication to
submit a plan to remedy the defect, and
ninety days from the initial communication
to remedy the defect, except in exceptional
circumstances in which a shorter period is
necessary for policyholder and other
consumer protection;
(3)
After the expiration of ninety days or less,
as set out in paragraph (2), if the
commissioner determines that no or
insufficient action was taken by the
assuming insurer, the commissioner may
impose any of the requirements as set out in
this subsection; and
(4)
Provide a written explanation to the
assuming insurer of any of the requirements
set out in this subsection.
(h)
If subject to a legal process of
rehabilitation, liquidation or conservation, as
applicable, the ceding insurer, or its representative,
may seek and, if determined appropriate by the court
in which the proceedings are pending, may obtain an
order requiring that the assuming insurer post
security for all outstanding liabilities. [Eff
7/28/22; am and comp 3/8/25] (Auth: HRS §§431:2-201,
431:4A-104) (Imp: HRS §431:4A-101)
§16-168-9
168-45
§16-168-8 Credit for reinsurance required by
law. Pursuant to section 431:4A-101(g), HRS, the
commissioner shall allow credit for reinsurance ceded
by a domestic insurer to an assuming insurer not
meeting the requirements of section 431:4A-101(b),
(c), (d), (e), (f), or (g), HRS, but only with respect
to the insurance of risks located in jurisdictions
where such reinsurance is required by the applicable
law or regulation of that jurisdiction. As used in
this section, "jurisdiction" means any state,
district, or territory of the United States and any
lawful national government. [Eff 1/25/97; §16-168-7
am, ren and comp 11/10/16; am and comp 7/28/22; comp
3/8/25] (Auth: HRS §§431:2-201, 431:4A-104) (Imp:
HRS §431:4A-101)
§16-168-9 Asset or reduction from liability for
reinsurance ceded to an unauthorized assuming insurer.
(a) Pursuant to section 431:4A-102, HRS, the
commissioner shall allow a reduction from liability
for reinsurance ceded by a domestic insurer to an
assuming insurer not meeting the requirements of
section 431:4A-101, HRS, 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 exclusive benefit of the ceding
insurer, under a reinsurance contract with the
assuming insurer as security for the payment of
obligations thereunder. The security must be 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
431:4A-103(b), HRS. This security may be in the form
of any of the following:
(1)
Cash;
§16-168-9
168-46
(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)
Clean, irrevocable, unconditional, and
"evergreen" letters of credit issued or
confirmed by a qualified United States
institution, as defined in section 431:4A-
103(a), HRS, effective no later than
December 31 of the year for which filing is
being made, and in the possession of the
ceding insurer on or before the filing date
of its annual statement. Letters of credit
meeting applicable standards of issuer
acceptability as of the dates of their
issuance (or confirmation), notwithstanding
the issuing (or confirming) institution's
subsequent failure to meet applicable
standards of issuer acceptability, shall
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.
(b)
An admitted asset or a reduction from
liability for reinsurance ceded to an unauthorized
assuming insurer pursuant to this section shall be
allowed only when the requirements of section 16-168-
13 and the applicable portions of section 16-168-11,
or 16-168-12 are met. [Eff 1/25/97; §16-168-8 am, ren
and comp 11/10/16; comp 7/28/22; am and comp 3/8/25]
(Auth: HRS §§431:2-201, 431:4A-104) (Imp: HRS
§431:4A-102)
§16-168-10 Trust agreements qualified under
section 16-168-9. (a) As used in this section:
§16-168-10
168-47
"Beneficiary" means the entity for whose sole
benefit the trust has been established and any
successor of the beneficiary by operation of law. If
a court of law appoints a successor in interest to the
named beneficiary, then the named beneficiary includes
and is limited to the court-appointed domiciliary
receiver, conservator, rehabilitator, or liquidator.
"Grantor" means the entity that has established a
trust for the sole benefit of the beneficiary. When
established in conjunction with a reinsurance
agreement, the grantor is the unlicensed, unaccredited
assuming insurer.
"Obligations", as used in subsection (b)(11),
means:
(1)
Reinsured losses and allocated loss expenses
paid by the ceding company, but not
recovered from the assuming insurer;
(2)
Reserves for reinsured losses reported and
outstanding;
(3)
Reserves for reinsured losses incurred but
not reported; and
(4)
Reserves for allocated reinsured loss
expenses and unearned premiums.
(b)
Required conditions.
(1)
The trust agreement shall be entered into
between the beneficiary, the grantor, and a
trustee which shall be a qualified United
States financial institution as defined in
section 431:4A-103(b), HRS;
(2)
The trust agreement shall create a trust
account into which assets shall be
deposited;
(3)
All assets in the trust account shall be
held by the trustee at the trustee's office
in the United States;
(4)
The trust agreement shall provide that:
(A)
The beneficiary shall have the right to
withdraw assets from the trust account
at any time, without notice to the
grantor, subject only to written notice
from the beneficiary to the trustee;
§16-168-10
168-48
(B)
No other statement or document is
required to be presented in order to
withdraw assets, except that the
beneficiary may be required to
acknowledge receipt of withdrawn
assets;
(C)
The trust agreement is not subject to
any conditions or qualifications
outside of the trust agreement; and
(D)
The trust agreement shall not contain
references to any other agreements or
documents except as provided for under
paragraphs (11) and (12);
(5)
The trust agreement shall be established for
the sole benefit of the beneficiary;
(6)
The trust agreement shall require the
trustee to:
(A)
Receive assets and hold all assets in a
safe place;
(B)
Determine that all assets are in such
form that the beneficiary, or the
trustee upon direction by the
beneficiary, may whenever necessary
negotiate any such assets, without
consent or signature from the grantor
or any other person or entity;
(C)
Furnish to the grantor and the
beneficiary a statement of all assets
in the trust account upon its inception
and at intervals no less frequent than
the end of each calendar quarter;
(D)
Notify the grantor and the beneficiary
within ten days of any deposits to or
withdrawals from the trust account;
(E)
Upon written demand of the beneficiary,
immediately take any and all steps
necessary to transfer absolutely and
unequivocally all right, title, and
interest in the assets held in the
trust account to the beneficiary and
deliver physical custody of the assets
to the beneficiary; and
§16-168-10
168-49
(F)
Allow no substitutions or withdrawals
of assets from the trust account,
except on written instructions from the
beneficiary, except that the trustee
may, without the consent of but with
notice to the beneficiary, upon call or
maturity of any trust asset, withdraw
such asset upon condition that the
proceeds are paid into the trust
account;
(7)
The trust agreement shall provide that at
least thirty days, but not more than forty-
five days, prior to termination of the trust
account, written notification of termination
shall be delivered by the trustee to the
beneficiary;
(8)
The trust agreement shall be made subject to
and governed by the laws of the state in
which the trust is established;
(9)
The trust agreement shall prohibit invasion
of the trust corpus for the purpose of
paying compensation to, or reimbursing the
expenses of, the trustee. In order for a
letter of credit to qualify as an asset of
the trust, the trustee shall have the right
and the obligation pursuant to the deed of
trust, or some other binding agreement
approved by the commissioner, to immediately
draw down the full amount of the letter of
credit and hold the proceeds in trust for
the beneficiaries of the trust if the letter
of credit will otherwise expire without
being renewed or replaced;
(10) The trust agreement shall provide that the
trustee shall be liable for its own
negligence, wilful misconduct, or lack of
good faith. The failure of the trustee to
draw against the letter of credit in
circumstances where the draw would be
required shall be deemed to be negligence,
wilful misconduct, or both;
§16-168-10
168-50
(11) Notwithstanding any other provisions of this
chapter, when a trust agreement is
established in conjunction with a
reinsurance agreement covering risks other
than life, annuities, and accident and
health, where it is customary practice to
provide a trust agreement for a specific
purpose, such a trust agreement,
notwithstanding any other conditions in this
chapter, may provide that the ceding insurer
shall undertake to use and apply amounts
drawn upon the trust account, without
diminution because of the insolvency of the
ceding insurer or the assuming insurer, for
the following purposes:
(A)
To pay or reimburse the ceding insurer
for the assuming insurer's share under
the specific reinsurance agreement
regarding any losses and allocated loss
expenses paid by the ceding insurer,
but not recovered from the assuming
insurer, or for unearned premiums due
to the ceding insurer if not otherwise
paid by the assuming insurer;
(B)
To make payment to the assuming insurer
of any amounts held in the trust
account that exceed one hundred two per
cent of the actual amount required to
fund the assuming insurer's obligations
under the specific reinsurance
agreement; or
(C)
Where the ceding insurer has received
notification of termination of the
trust account and where the assuming
insurer's entire obligations under the
specific reinsurance agreement remain
unliquidated and undischarged ten days
prior to the termination date, to
withdraw amounts equal to the
obligations and deposit those amounts
in a separate account, in the name of
the ceding insurer in any qualified
§16-168-10
168-51
United States financial institution as
defined in section 431:4A-103, HRS,
apart from its general assets, in trust
for such uses and purposes specified in
subparagraphs (A) and (B) as may remain
executory after such withdrawal and for
any period after the termination date;
(12) Notwithstanding other provisions of this
chapter, when a trust agreement is
established to meet the requirements of
section 16-168-9 in conjunction with a
reinsurance agreement covering life,
annuities, or accident and health risks,
and, where it is customary to provide a
trust agreement for a specific purpose, the
trust agreement may provide that the ceding
insurer shall undertake to use and apply
amounts drawn upon the trust account,
without diminution because of the insolvency
of the ceding insurer or the assuming
insurer for the following purposes:
(A)
To pay or reimburse the ceding insurer
for:
(i)
The assuming insurer’s share
under the specific reinsurance
agreement of premiums returned,
but not yet recovered from the
assuming insurer, to the owners
of policies reinsured under the
reinsurance agreement on account
of cancellations of the
policies; and
(ii)
The assuming insurer’s share
under the specific reinsurance
agreement of surrenders and
benefits or losses paid by the
ceding insurer, but not yet
recovered from the assuming
insurer, under the terms and
provisions of the policies
reinsured under the reinsurance
agreement;
§16-168-10
168-52
(B)
To pay to the assuming insurer amounts
held in the trust account in excess of
the amount necessary to secure the
credit or reduction from liability for
reinsurance taken by the ceding
insurer; or
(C)
Where the ceding insurer has received
notification of termination of the
trust and where the assuming insurer’s
entire obligations under the specific
reinsurance agreement remain
unliquidated and undischarged ten days
prior to the termination date, to
withdraw amounts equal to the assuming
insurer’s share of unfunded liabilities
and deposit those amounts in a separate
trust account in the name of the ceding
insurer in a qualified United States
financial institution, apart from the
assuming insurer's general assets, for
the uses and purposes specified in
subparagraphs (A) and (B) as may remain
executory after withdrawal and for any
period after the termination date; and
(13) Either the reinsurance agreement or the
trust agreement must stipulate that assets
deposited in the trust account shall be
valued according to their current fair
market value and shall consist only of cash
in United States dollars, certificates of
deposit issued by a United States bank and
payable in United States dollars, and
investments permitted by the Insurance Code
or any combination of the foregoing,
provided investments in or issued by an
entity controlling, controlled by, or under
common control with either the grantor or
the beneficiary of the trust shall not
exceed five per cent of total investments.
The agreement may further specify the types
of investments to be deposited. If the
reinsurance agreement covers life,
§16-168-10
168-53
annuities, or accident and health risks,
then the provisions required by this
paragraph must be included in the
reinsurance agreement.
(c)
Permitted conditions.
(1)
The trust agreement may provide that the
trustee may resign upon delivery of a
written notice of resignation, effective not
less than ninety days after receipt by the
beneficiary and grantor of the notice, and
that the trustee may be removed by the
grantor by delivery to the trustee and the
beneficiary of a written notice of removal,
effective not less than ninety days after
receipt by the trustee and the beneficiary
of the notice, provided that no such
resignation or removal shall be effective
until a successor trustee has been duly
appointed and approved by the beneficiary
and the grantor and all assets in the trust
have been duly transferred to the new
trustee;
(2)
The grantor may have the full and
unqualified right to vote any shares of
stock in the trust account and to receive
from time to time payments of any dividends
or interest upon any shares of stock or
obligations included in the trust account.
Any such interest or dividends shall be
either forwarded promptly upon receipt to
the grantor or deposited in a separate
account established in the grantor's name;
(3)
The trustee may be given authority to
invest, and accept substitutions of, any
funds in the account, provided that no
investment or substitution shall be made
without prior approval of the beneficiary,
unless the trust agreement specifies
categories of investments acceptable to the
beneficiary and authorizes the trustee to
invest funds and to accept substitutions
which the trustee determines are at least
§16-168-10
168-54
equal in current fair market value to the
assets withdrawn and that are consistent
with the restrictions in subsection
(d)(1)(B);
(4)
The trust agreement may provide that the
beneficiary may at any time designate a
party to which all or part of the trust
assets are to be transferred. The transfer
may be conditioned upon the trustee
receiving, prior to or simultaneously, other
specified assets; and
(5)
The trust agreement may provide that, upon
termination of the trust account, all assets
not previously withdrawn by the beneficiary
shall, with written approval by the
beneficiary, be delivered over to the
grantor.
(d)
Additional conditions applicable to
reinsurance agreements.
(1)
A reinsurance agreement, which is entered
into in conjunction with a trust agreement
and the establishment of a trust account,
may contain provisions that:
(A)
Require the assuming insurer to enter
into a trust agreement and to establish
a trust account for the benefit of the
ceding insurer, and specifying what the
agreement is to cover;
(B)
Require the assuming insurer, prior to
depositing assets with the trustee, to
execute assignments or endorsements in
blank, or to transfer legal title to
the trustee of all shares, obligations,
or any other assets requiring
assignments, in order that the ceding
insurer, or the trustee upon the
direction of the ceding insurer, may
whenever necessary negotiate these
assets without consent or signature
from the assuming insurer or any other
entity;
§16-168-10
168-55
(C)
Require that all settlements of account
between the ceding insurer and the
assuming insurer be made in cash or its
equivalent; and
(D)
Stipulate that the assuming insurer and
the ceding insurer agree that the
assets in the trust account,
established pursuant to the provisions
of the reinsurance agreement, may be
withdrawn by the ceding insurer at any
time, notwithstanding any other
provisions in the reinsurance
agreement, and shall be utilized and
applied by the ceding insurer or its
successors in interest by operation of
law, including without limitation any
liquidator, rehabilitator, receiver, or
conservator of such company, without
diminution because of insolvency on
the part of the ceding insurer or the
assuming insurer, only for the
following purposes:
(i)
To pay or reimburse the ceding
insurer for the assuming
insurer's share of premiums
returned to the owners of
policies reinsured under the
reinsurance agreement because of
cancellations of such policies;
(ii)
To pay or reimburse the ceding
insurer for the assuming
insurer's share of surrenders
and benefits or losses paid by
the ceding insurer pursuant to
the provisions of the policies
reinsured under the reinsurance
agreement;
(iii)
To make payment to the assuming
insurer of amounts held in the
trust account in excess of the
amount necessary to secure the
credit or reduction from
§16-168-10
168-56
liability for reinsurance taken
by the ceding insurer; and
(iv)
To pay or reimburse the ceding
insurer any other amounts
necessary to secure the credit
or reduction from liability for
reinsurance taken by the ceding
insurer.
(2)
The reinsurance agreement may also contain
provisions that:
(A)
Give the assuming insurer the right to
seek approval from the ceding insurer
to withdraw from the trust account all
or any part of the trust assets and
transfer those assets to the assuming
insurer, provided:
(i)
The assuming insurer shall, at
the time of withdrawal, replace
the withdrawn assets with other
qualified assets having a
current fair market value equal
to the market value of the
assets withdrawn so as to
maintain at all times the
deposit in the required amount;
or
(ii)
After withdrawal and transfer,
the current fair market value of
the trust account is no less
than one hundred two per cent of
the required amount;
(B)
Provide for the return of any amount
withdrawn in excess of the actual
amounts required for subsection
(d)(1)(D), and for interest payments at
a rate not in excess of the prime rate
of interest on the amounts; and
(C)
Permit the award by any arbitration
panel or court of competent
jurisdiction of:
§16-168-10
168-57
(i)
Interest at a rate different
from that provided in
subparagraph (B);
(ii)
Court or arbitration costs;
(iii)
Attorney's fees; and
(iv)
Any other reasonable expenses.
(3)
A trust agreement may be used to reduce any
liability for reinsurance ceded to an
unauthorized assuming insurer in financial
statements required to be filed with the
insurance division in compliance with the
provisions of this chapter when established
on or before the date of filing of the
financial statement of the ceding insurer.
Further, the reduction for the existence of
an acceptable trust account may be up to the
current fair market value of acceptable
assets available to be withdrawn from the
trust account at that time, but such
reduction shall be no greater than the
specific obligations under the reinsurance
agreement that the trust account was
established to secure.
(4)
Notwithstanding the effective date of this
chapter, any trust agreement or underlying
reinsurance agreement in existence prior to
December 31, 1996, will continue to be
acceptable until December 31, 1997, at which
time the agreements will have to be in full
compliance with this chapter for the trust
agreement to be acceptable.
(5)
The failure of any trust agreement to
specifically identify the beneficiary as
defined in subsection (a) shall not be
construed to affect any actions or rights
which the commissioner may take or possess
pursuant to the provisions of the laws of
this State. [Eff 1/25/97; §16-168-9 am,
ren, and comp 11/10/16; comp 7/28/22; comp
3/8/25] (Auth: HRS §§431:2-201, 431:4A-
104) (Imp: HRS §431:4A-102)
§16-168-11
168-58
§16-168-11 Letters of credit qualified under
section 16-168-9. (a) The letter of credit must be
clean, irrevocable, and unconditional and issued or
confirmed by a qualified United States financial
institution as defined in section 431:4A-103(a), HRS.
The letter of credit shall contain an issue date and
date of expiration and shall stipulate that the
beneficiary need only draw a sight draft under the
letter of credit and present it to obtain funds and
that no other document need be presented. The letter
of credit shall also indicate that it is not subject
to any condition or qualifications outside of the
letter of credit. In addition, the letter of credit
itself shall not contain reference to any other
agreements, documents, or entities, except as provided
in subsection (h)(1). As used in this section,
"beneficiary" means the domestic insurer for whose
benefit the letter of credit has been established and
any successor of the beneficiary by operation of law.
If a court of law appoints a successor in interest to
the named beneficiary, then the named beneficiary
includes and is limited to the court appointed
domiciliary receiver, conservator, rehabilitator, or
liquidator.
(b)
The heading of the letter of credit may
include a boxed section which contains the name of the
applicant and other appropriate notations to provide a
reference for the letter of credit. The boxed section
shall be clearly marked to indicate that such
information is for internal identification purposes
only.
(c)
The letter of credit shall contain a
statement to the effect that the obligation of the
qualified United States financial institution under
the letter of credit is in no way contingent upon
reimbursement with respect thereto.
(d)
The term of the letter of credit shall be
for at least one year and shall contain an "evergreen
clause" which prevents the expiration of the letter of
§16-168-11
168-59
credit without due notice from the issuer. The
"evergreen clause" shall provide for a period of no
less than thirty days' notice prior to expiry date or
nonrenewal.
(e)
The letter of credit shall state whether it
is subject to and governed by the laws of this State
or the Uniform Customs and Practice for Documentary
Credits of the International Chamber of Commerce
Publication 600 (UCP 600), International Standby
Practices of the International Chamber of Commerce
Publication 590 (ISP98), or any successor publication,
and all drafts drawn thereunder shall be presentable
at an office in the United States of a qualified
United States financial institution.
(f)
If the letter of credit is made subject to
the Uniform Customs and Practice for Documentary
Credits of the International Chamber of Commerce
Publication 600, (UCP 600), International Standby
Practices of the International Chamber of Commerce
Publication 590 (ISP98), or any successor publication,
then the letter of credit shall specifically address
and make provision for an extension of time to draw
against the letter of credit in the event that one or
more of the occurrences specified in Article 36 of
Publication 600 occur.
(g)
If the letter of credit is issued by a
financial institution authorized to issue letters of
credit, other than a qualified United States financial
institution as described in subsection (a), then the
following additional requirements shall be met:
(1)
The issuing financial institution shall
formally designate the confirming qualified
United States financial institution as its
agent for the receipt and payment of the
drafts; and
(2)
The "evergreen clause" shall provide for
thirty days' notice prior to expiry date or
nonrenewal.
(h)
Reinsurance agreement provisions.
(1)
The reinsurance agreement in conjunction
with which the letter of credit is obtained
may contain provisions which:
§16-168-11
168-60
(A)
Require the assuming insurer to provide
letters of credit to the ceding insurer
and specify what they are to cover.
(B)
Stipulate that the assuming insurer and
ceding insurer agree that the letter of
credit provided by the assuming insurer
pursuant to the provisions of the
reinsurance agreement may be drawn upon
at any time, notwithstanding any other
provisions in the agreement, and shall
be utilized by the ceding insurer or
its successors in interest only for one
or more of the following reasons:
(i)
To pay or reimburse the ceding
insurer for the assuming
insurer's share under the
specific reinsurance agreement
of premiums returned, but not
yet recovered from the assuming
insurers, to the owners of
policies reinsured under the
reinsurance agreement on account
of cancellations of such
policies;
(ii)
To pay or reimburse the ceding
insurer for the assuming
insurer's share of surrenders
and benefits or losses paid by
the ceding insurer, but not yet
recovered from the assuming
insurers, under the terms and
provisions of the policies
reinsured under the reinsurance
agreement;
(iii)
To pay or reimburse the ceding
insurer for any other amounts
necessary to secure the credit
or reduction from liability for
reinsurance taken by the ceding
insurer; and
(iv)
Where the letter of credit will
expire without renewal or be
§16-168-11
168-61
reduced or replaced by a letter
of credit for a reduced amount
and where the assuming insurer’s
entire obligations under the
reinsurance agreement remain
unliquidated and undischarged
ten days prior to the
termination date, to withdraw
amounts equal to the assuming
insurer’s share of the unfunded
liabilities exceeding the amount
of any reduced or replacement
letter of credit and deposit
those amounts in a separate
trust account in the name of the
ceding insurer in a qualified
United States financial
institution, apart from the
assuming insurer's general
assets, for such uses and
purposes specified in clause (i)
as may remain after withdrawal
and for any period after the
termination date; and
(C)
All of the foregoing provisions of this
paragraph should be applied without
diminution because of insolvency on the
part of the ceding insurer or assuming
insurer.
(2)
Nothing contained in paragraph (1) shall
preclude the ceding insurer and assuming
insurer from providing either or both of the
following:
(A)
An interest payment, at a rate not in
excess of the prime rate of interest,
on the amounts held pursuant to
paragraph (1)(B);
(B)
The return of any amounts drawn down on
the letters of credit in excess of the
actual amounts required for this
subsection or any amounts that are
subsequently determined not to be due.
§16-168-11
168-62
[Eff 1/25/97; §16-168-10 am, ren, and
comp 11/10/16; comp 7/28/22; comp
3/8/25] (Auth: HRS §§431:2-201,
431:4A-104) (Imp: HRS §431:4A-102)