760 IAC 1-82-17 Requirements applicable to covered policies to obtain credit for reinsurance; opportunity for remediation

Sec. 17. (a) Subject to the exemptions described in section 15 of this rule and the provisions of subsection (b), credit for reinsurance shall be allowed with respect to ceded liabilities pertaining to covered policies under IC 27-6-10.1-2 and IC 27-1-10.1-3 if, in addition to all other requirements imposed by law or rule, the following requirements are met on a treaty-by-treaty basis: (1) The ceding insurer's statutory policy reserves with respect to the covered policies are established in full and in accordance with the applicable requirements of IC 27-1-12.8 and related rules and actuarial guidelines, and credit claimed for any reinsurance treaty subject to this rule does not exceed the proportionate share of those reserves ceded under the contract. (2) The ceding insurer determines the required level of primary security with respect to each reinsurance treaty subject to this regulation and provides support for its calculation as determined to be acceptable to the commissioner. (3) Funds consisting of primary security, in an amount at least equal to the required level of primary security, are held by or on behalf of the ceding insurer, as security under the reinsurance treaty within the meaning of IC 27-6-10.1-3, on a funds-withheld, trust, or modified coinsurance basis. (4) Funds consisting of other security, in an amount at least equal to any portion of the statutory reserves to which primary security is not held under subdivision (3), are held by or on behalf of the ceding insurer as security under the reinsurance treaty within the meaning of IC 27-6-10.1-3. (5) A trust used to satisfy the requirements of this section shall comply with all of the conditions and qualifications of 760 IAC 1-56-10, except that: (A) funds consisting of primary security or other security held in trust, shall, for the purposes identified in section 16(b) of this rule, be valued according to the valuation rules set forth in section 16(b) of this rule, as applicable; and (B) there are no affiliate investment limitations with respect to security held in the trust if the security is not needed to satisfy the requirements of subdivision (3); (C) the reinsurance treaty must prohibit withdrawals or substitutions of trust assets that would leave the fair market value of the primary security within the trust (when aggregated with primary security outside the trust that is held by or on behalf of the ceding insurer in the manner required by subdivision (3) below one hundred two percent (102%) of the level required by subdivision (3) at the time of the withdrawal or substitution); and (D) the determination of reserve credit under 760 IAC 1-56-10(d)(3) shall be determined according to the valuation rules set forth in section 16(b) of this rule, as applicable. (6) The reinsurance treaty has been approved by the commissioner. (b) The following requirements are also applicable to covered policies: (1) The requirements of subsection (a) must be satisfied as of the date that risks under covered policies are ceded, if the date is on or after the effective date of this rule, and on an ongoing basis thereafter. Under no circumstances shall a ceding insurer take or consent to an action or series of actions that would result in a deficiency under subsection (a)(3) or (a)(4) with respect to a reinsurance treaty under which covered policies have been ceded, and in the event that a ceding insurer becomes aware at any time that such a deficiency exists, it shall use its best efforts to arrange for the deficiency to be eliminated as expeditiously as possible. (2) Prior to the due date of each quarterly or annual statement, each life insurance company that has ceded reinsurance within the scope of section 13 of this rule shall perform an analysis, on a treaty-by-treaty basis, to determine, as to each reinsurance treaty under which covered policies have been ceded, whether, as of the end of the immediately preceding calendar quarter (the valuation date), the requirements of subsection (a)(3) and (a)(4) were satisfied. The ceding insurer shall establish a liability equal to the excess of the credit for reinsurance taken over the amount of primary security actually held under subsection (a)(3), unless either: (A) the requirements of subsection (a)(3) and (a)(4) were fully satisfied as of the valuation date as to the reinsurance treaty; or (B) any deficiency has been eliminated before the due date of the quarterly or annual statement to which the valuation date relates through the addition of primary security or other security, or both, as the case may be, in the amount and in the form as would have caused the requirements of subsection (a)(3) and (a)(4) to be fully satisfied as of the valuation date. Nothing in this subdivision shall be construed to allow a ceding company to maintain a deficiency under subsection (a)(3) and (a)(4) for any period of time longer than is reasonably necessary to eliminate it.