760 IAC 1-55-2 Preamble

Sec. 2. (a) The department of insurance recognizes that licensed insurers routinely enter into reinsurance agreements that yield legitimate relief to the ceding insurer from strain to surplus. (b) However, it is improper for a licensed insurer, in the capacity of ceding insurer, to enter into reinsurance agreements for the principal purpose of producing significant surplus aid for the ceding insurer, typically on a temporary basis, while not transferring all of the significant risks inherent in the business being reinsured. In substance or effect, the expected potential liability to the ceding insurer remains basically unchanged by the reinsurance transaction, notwithstanding certain risk elements in the reinsurance agreement, such as catastrophic mortality or extraordinary survival. The terms of such agreements referred to in this subsection and described in section 4 of this rule violate: (1) IC 27-1-20-21 relating to financial statements which do not properly reflect the financial condition of the ceding insurer; (2) 760 IAC 1-56 relating to reinsurance reserve credits, thus resulting in a ceding insurer improperly reducing liabilities or establishing assets for reinsurance ceded; and (3) IC 27-9-2-1 relating to creating a situation that may be hazardous to policyholders and the people of this state.