230-RICR-20-45-3
230-RICR-20-45-3. Credit for Reinsurance (version Periodic Refile, 12/19/2001 to 09/02/2014)
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Reg. # 59
State of Rhode Island and Providence Plantations
DEPARTMENT OF BUSINESS REGULATION
Division of Insurance
233 Richmond Street
Providence, RI 02903
INSURANCE REGULATION 59
CREDIT FOR REINSURANCE
Table of Contents
Section 1
Authority
Section 2
Purpose
Section 3
Severability
Section 4
Definitions
Section 5
Credit for Reinsurance -- Reinsurer Licensed in this State
Section 6
Credit for Reinsurance -- Accredited Reinsurers
Section 7
Credit for Reinsurance -- Reinsurer Domiciled and Licensed in Another
State
Section 8
Credit for Reinsurance -- Reinsurers Maintaining Trust Funds
Section 9
Credit for Reinsurance Required by Law
Section 10
Reduction from Liability for Reinsurance Ceded to an Unauthorized
Assuming Insurer
Section 11
Trust Agreements Qualified under Section 10
Section 12
Letters of Credit Qualified Under Section 10
Section 13
Other Security
Section 14
Reinsurance Contracts
Section 15
Contracts Affected
Form AR-1--(Certificate Of Assuming Insurer)
Section 1
Authority
This Regulation is promulgated pursuant to the authority granted by R.I. Gen.
Laws §§ 27-1.1-1 et seq and 42-14-1 et seq.
Section 2
Purpose
The purpose of this Regulation is to set requirements which the commissioner
deems necessary to carry out the provisions of the Credit for Reinsurance Act, (the
"Act"), R.I. Gen. Laws § 27-1.1-1 et seq. The actions and information required by this
Regulation are hereby declared to be necessary and appropriate in the public interest and
for the protection of the ceding insurers in this state.
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Section 3
Severability
If any provisions of this Regulation, or its application to any person or
circumstance, is held invalid, such determination shall not affect the validity of other
provisions or applications of this Regulation.
Section 4
Definitions
A.
"Commissioner" means the Director of the Department of Business
Regulation.
B.
"NAIC" means the National Association of Insurance Commissioners.
C.
"Department" means the Department of Business Regulation.
Section 5
Credit for Reinsurance -- Reinsurer Licensed in this State
Pursuant to R.I. Gen. Laws § 27-1.-1-1(A), the Commissioner shall allow credit
for reinsurance ceded by a domestic insurer to assuming insurers which were licensed in
this state as of the date of the ceding insurer's statutory financial statement.
Section 6
Credit for Reinsurance -- Accredited Reinsurers
A.
Pursuant to R.I. Gen. Laws § 27-1.1-1(B) , the Commissioner shall allow
credit for reinsurance ceded by a domestic insurer to an assuming insurer
which is an accredited reinsurer in this state as of the date of the ceding
insurer's statutory financial statement. An accredited reinsurer is one
which:
(1)
Files a properly executed Form AR-1, attached as Exhibit A to
these Regulations, as evidence of its submission to this state's
jurisdiction and to this state's authority to examine its books and
records; and
(2)
Files 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; and
(3)
Files 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
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insurance or reinsurance, and a copy of its most recent audited
financial statement; and
(4)
Maintains a surplus as regards policyholders in an amount not less
than twenty million dollars ($20,000,000) and whose accreditation
has not been denied by the Commissioner within ninety (90) days
of its submission or, in the case of companies with a surplus as
regards policyholders of less than twenty million dollars
($20,000,000), whose accreditation has been approved by the
commissioner.
B.
If the Commissioner determines that the assuming insurer has failed to
meet or maintain any of these qualifications, he may after written notice
and hearing revoke the accreditation. No credit shall be allowed a
domestic ceding insurer with respect to reinsurance ceded after December
18, 1992 if the assuming insurer's accreditation has been denied or
revoked by the commissioner after notice and hearing.
Section 7
Credit for Reinsurance -- Reinsurer Domiciled and Licensed in Another
State
A.
Pursuant to R.I. Gen. Laws § 27-1.1-1(C) 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 and licensed 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 the Act
and this Regulation;
(2)
Maintains a policyholders surplus in an amount not less than
twenty million dollars ($20,000,000); and
(3)
Submits to this state's authority to examine its books and records
by filing a properly executed Form AR-1 with the commissioner.
B.
The provisions of this section relating to policyholders surplus 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 determines equal or exceed the
standards of the Act and this Regulation.
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Section 8
Credit for Reinsurance -- Reinsurers Maintaining Trust Funds
A.
Pursuant to R.I. Gen. Laws § 27-1.1-1(E), 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 R.I. Gen. Laws § 27-1.1-3(b), 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 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 twenty million dollars
($20,000,000).
(2)
The trust fund for a group of individual unincorporated
underwriters shall consist of funds in trust in an amount not less
than the group's aggregate liabilities attributable to business
written in the United States and, in addition, the group shall
maintain a trusteed surplus of which one hundred million dollars
($100,000,000) shall be held jointly for the benefit of the United
States ceding insurers of any member of the group. The group shall
make available to the commissioner annual certification by the
group's domiciliary regulator and its independent public
accountants of the solvency of each underwriter member of the
group.
(3)
The trust fund for a group of incorporated insurers under common
administration, whose members possess aggregate policyholders
surplus of ten billion dollars ($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 NAIC and which has continuously
transacted an insurance business outside the United States for at
least three (3) 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
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pursuant to reinsurance contracts issued in the name of such group
and, in addition, the group shall maintain a joint trusteed surplus of
which one hundred million dollars ($100,000,000) shall be held
jointly for the benefit of United States ceding insurers of any
member of the group. The group shall submit to this state's
authority to examine the books and records of any of its members
by executing and filing a properly executed Form AR-1 with the
Commissioner and shall certify that any member examined will
bear the expense of any such examination.
The group shall make available to the commissioner annual certifications
by the members' domiciliary regulators and their independent public
accountants of the solvency of each member of the group.
C.
The trust shall be established in a form approved by the commissioner and
complying with R.I. Gen. Laws § 27-1.1-1 and this section. The trust
instrument shall provide that:
(1)
Contested claims shall be valid and enforceable out of funds in
trust to the extent remaining unsatisfied thirty (30) days after entry
of the final order of any court of competent jurisdiction in the
United States.
(2)
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.
(3)
The trust shall be subject to examination as determined by the
commissioner.
(4)
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 arrangements
subject to the trust.
(5)
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.
(6)
No amendment to the trust shall be effective unless reviewed and
approved in advance by the commissioner.
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Section 9
Credit for Reinsurance Required by Law
Pursuant to R.I. Gen. Laws § 27-1.1-1(F), the Commissioner shall allow credit for
reinsurance ceded by a domestic insurer to an assuming insurer not meeting the
requirements of R.I. Gen. Laws §§ 27-1.1-1(B) through (E), 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.
Section 10
Reduction from Liability for Reinsurance Ceded to an Unauthorized
Assuming Insurer
Pursuant to R.I. Gen. Laws § 27-1.1-2, the Commissioner shall allow a reduction
from liability for reinsurance ceded by a domestic insurer to an assuming insurer not
meeting the requirements of R.I. Gen. Laws § 27-1.1-1 in an amount not exceeding the
liabilities carried by the ceding insurer. Such 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 such assuming insurer as
security for the payment of obligations thereunder. Such security must be held in the
United States subject to withdrawal solely by, and under the exclusive control of, the
ceding insurer or its liquidator, rehabilitator, or statutory successor or, in the case of a
trust, held in a qualified United States financial institution as defined in R.I. Gen. Laws §
27-1.1-3(b). This security may be in the form of any of the following:
A.
Cash.
B.
Securities listed by the Securities Valuation Office of the NAIC and
qualifying as admitted assets.
C.
Clean, irrevocable, unconditional and "evergreen" letters of credit issued
or confirmed by a qualified United States financial institution, as defined
in R.I. Gen. Laws § 27-1.1-3(a), effective no later than December 31 of
the year for which filing is being made, and in the possession of the ceding
company 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 shall, notwithstanding the issuing or
confirming institution's subsequent failure to meet applicable standards of
issuer acceptability, continue to be acceptable as security until their
expiration, extension, renewal, modification or amendment, whichever
first occurs.
D.
Any other form of security acceptable to the Commissioner.
An admitted asset or a reduction from liability for reinsurance ceded to an
unauthorized assuming insurer pursuant to Sections 10(A) through (C) of
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this Regulation shall be allowed only when the requirements of Sections
11, 12, or 13 of this Regulation are met.
Section 11
Trust Agreements Qualified under Section 10
A.
As used in this Section:
(1)
"Beneficiary" means the entity for whose sole benefit the trust has
been established and any successor of the beneficiary by operation
of law. The trust agreement shall contain a provision that includes
within the term beneficiary any successor of the beneficiary by
operation of law, including without limitation, domiciliary receiver
conservator, rehabilitator or liquidator. When established in
conjunction with a reinsurance contract, the beneficiary is the
licensed ceding insurer and its successor by operation of law,
including without limitation, domiciliary receiver conservator,
rehabilitator or liquidator.
(2)
"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.
(3)
"Obligations," as used in Section 11(B)(11), means:
(a)
Reinsured losses and allocated loss expenses paid by the
ceding company, but not recovered from the assuming
insurer;
(b)
Reserves for reinsured losses reported and outstanding;
(c)
Reserves for reinsured losses incurred but not reported; and
(d)
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 R.I. Gen. Laws § 27-1.1-3(b).
(2)
The trust agreement shall create a trust account into which assets
shall be deposited.
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(3)
All assets in the trust account shall be held by the trustee at the
trustee's office in the United States, except that a bank may apply
for the Commissioner's permission to use a foreign branch office
of such bank as trustee for trust agreements established pursuant to
this section. If the Commissioner approves the use of such foreign
branch office as trustee, then its use must be approved by the
beneficiary in writing and the trust agreement must provide that the
written notice described in Section 11(B)(4)(a) below must also be
presentable, as a matter of legal right, at the trustee's principal
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;
(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)
It is not subject to any conditions or qualifications outside
of the trust agreement; and
(d)
It shall not contain references to any other agreements or
documents except as provided for under Section 11(B)(11)
below.
(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;
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(d)
Notify the grantor and the beneficiary within ten (10) 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
(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 (30) days, but
not more than forty-five (45) days prior to termination of the trust
account, for delivery of written notification of termination by the
trustee to the beneficiary.
(8)
The trust agreement shall be made subject to and governed by the
laws of Rhode Island.
(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.
(10)
The trust agreement shall provide that the trustee shall be liable for
its own negligence, willful misconduct or lack of good faith.
(11)
Notwithstanding other provisions of this Regulation, 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 may,
notwithstanding any other conditions in this Regulation, 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
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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
percent (102%) 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 (10)
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 United States financial institution as defined in
R.I. Gen. Laws § 27-1.1-3(b) apart from its general assets,
in trust for such uses and purposes specified in
subparagraphs (a) and (b) above as may remain executory
after such withdrawal and for any period after the
termination date.
(12)
The reinsurance agreement entered into in conjunction with the
trust agreement may, but need not, contain the provisions required
by Section 11(D)(1)(b), so long as these required conditions are
included in the trust 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 (90) 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 (90) 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 dully 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
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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 equal in market value to the assets
withdrawn and that are consistent with the restrictions in Section
11(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. Such transfer may be conditioned upon the trustee
receiving, prior to or simultaneously, other specified assets.
(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 specify what the agreement is to cover;
(b)
Stipulate that assets deposited in the trust account shall be
valued according to their current fair market value and shall
consist only of cash of United States legal tender,
certificates of deposit issued by a United States bank and
payable in United States legal tender, and investments of
the types permitted by the Insurance Code or any
combination of the above, provided that such investments
are issued by an institution that is not the parent, subsidiary
or affiliate of either the grantor or the beneficiary. The
reinsurance agreement may further specify the types of
investments to be deposited. Where a trust agreement is
entered into in conjunction with a reinsurance agreement
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covering risks other than life, annuities and accident and
health, then the trust agreement may contain the provisions
required by this paragraph in lieu of including such
provisions in the reinsurance agreement;
(c)
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;
(d)
Require that all settlements of account between the ceding
insurer and the assuming insurer be made in cash or its
equivalent; and
(e)
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 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 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 fund an account with the ceding insurer in an
amount at least equal to the deduction, for
reinsurance ceded, from the ceding insurer
liabilities for policies ceded under the agreement.
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The account shall include, but not be limited to,
amounts for policy reserves, claims and losses
incurred including losses incurred but not reported,
loss adjustment expenses and unearned premium
reserves; and
(iv)
To pay any other amounts the ceding insurer claims
are due under the reinsurance agreement.
(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 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 market value of
the trust account is no less than one hundred two per
cent (102%) of the required amount.
The ceding insurer shall not unreasonably or arbitrarily
withhold its approval.
(b)
Provide for:
(i)
The return of any amount withdrawn in excess of
the actual amount required for Sections
11(D)(1)(e)(i), (ii) and (iii), or in the case of Section
11(D)(1)(e)(iv), any amounts that are subsequently
determined not to be due; and
(ii)
Interest payments, at a rate not in excess of the
prime rate of interest, on the amounts held pursuant
to Section 11(D)(1)(e)(iii).
(c)
Permit the award by any arbitration panel or court of
competent jurisdiction of:
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(i)
Interest at a rate different from that provided in
Section 11(D)(2)(b)(ii),
(ii)
Court or arbitration costs,
(iii)
Attorney's fees, and
(iv)
Any other reasonable expenses.
(3)
Financial reporting. 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 this Department in
compliance with the provisions of this Regulation 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)
Existing agreements. Any trust agreement or underlying
reinsurance agreement in existence prior to the effective date of
this Regulation will continue to be acceptable until ninety days
from the effective date of this Regulation, at which time the
agreements will have to be in full compliance with this Regulation
for the trust agreement to be acceptable.
(5)
The failure of any trust agreement to specifically identify the
beneficiary as defined in Subsection A of this section 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.
Section 12
Letters of Credit Qualified Under Section 10
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 R.I. Gen. Laws § 27-1.1-3(a). 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 Section 12(I)(1) below. As used in this
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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 including 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
credit without due notice from the issuer. The "evergreen clause" shall
provide for a period of no less than thirty (30) days' notice prior to the
expiration 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 Practices for Documentary
Credits of the International Chamber of Commerce (Publication 400), 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 Practices
for Documentary Credits of the International Chamber of Commerce
(Publication 400), 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 19 of
Publication 400 occur.
G.
The letter of credit shall be issued or confirmed by a qualified United
States financial institution authorized to issue letters of credit, pursuant to
R.I. Gen. Laws § 27-1.1-3(a).
H.
If the letter of credit is issued by a qualified United States financial
institution authorized to issue letters of credit, other than a qualified
United States financial institution as described in Section 12(G) above,
then the following additional requirements shall be met:
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(1)
The issuing qualified United States 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 (30) days' notice
prior to expiry date for nonrenewal.
I.
Reinsurance agreement provisions.
(1)
The reinsurance agreement in conjunction with which the letter of
credit is obtained may contain provisions which:
(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 reimburse the ceding insurer for the assuming
insurer's share of premiums returned to the owners
of policies reinsured under the reinsurance
agreement on account of cancellations of such
policies;
(ii)
To reimburse the ceding insurer for the assuming
insurer's share of surrenders and benefits or losses
paid by the ceding insurer under the terms and
provisions of the policies reinsured under the
reinsurance agreement;
(iii)
To fund an account with the ceding insurer in an
amount at least equal to the deduction, for
reinsurance ceded, from the ceding insurer's
liabilities for policies ceded under the agreement
(such amount shall include, but not be limited to,
amounts for policy reserves, claims and losses
incurred and unearned premium reserves); and
(iv)
To pay any other amounts the ceding insurer claims
are due under the reinsurance agreement.
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(c)
All of the foregoing provisions of Section 12(I)(1) should
be applied without diminution because of insolvency on the
part of the ceding insurer or assuming insurer.
(2)
Nothing contained in Section 12(I)(1) shall preclude the ceding
insurer and assuming insurer from providing for:
(a)
An interest payment, at a rate not in excess of the prime
rate of interest, on the amounts held pursuant to
12(I)(1)(b)(iii); and/or
(b)
The return of any amounts drawn down on the letters of
credit in excess of the actual amounts required for the
above or, in the case of Section 12(I)(1)(b)(iv) of this
subsection, any amounts that are subsequently determined
not to be due.
(3)
When a letter of credit is obtained in conjunction with a
reinsurance agreement covering risks other than life, annuities and
health, where it is customary practice to provide a letter of credit
for a specific purpose, then the reinsurance agreement may, in lieu
of Section 12(I)(1)(b), require that the parties enter into a "Trust
Agreement" which may be incorporated into the reinsurance
agreement or be a separate document.
J.
A letter of credit may not be used to reduce any liability for reinsurance
ceded to an unauthorized assuming insurer in financial statements required
to be filed with this department unless an acceptable letter of credit with
the filing ceding insurer as beneficiary has been issued on or before the
date of filing of the financial statement. Further, the reduction for the letter
of credit may be up to the amount available under the letter of credit but
no greater than the specific obligation under the reinsurance agreement
which the letter of credit was intended to secure.
Section 13
Other Security
A ceding insurer may take credit for unencumbered funds withheld by the ceding
insurer in the United States subject to withdrawal solely by the ceding insurer and under
its exclusive control.
Section 14
Reinsurance Contracts
Credit will not be granted to a ceding insurer for reinsurance effected with
assuming insurers meeting the requirements of Sections 5, 6, 7, 8, or 10 of this
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Regulation or otherwise in compliance with R.I. Gen. Laws § 27-1.1-1 after the adoption
of this Regulation unless the reinsurance agreement:
A.
Includes a proper insolvency clause pursuant to the General Laws of
Rhode Island, as amended; and
B.
Includes a provision pursuant to R.I. Gen. Laws § 27-1.1-1(G) whereby
the assuming insurer, if an unauthorized assuming insurer, has submitted
to the jurisdiction of an alternative dispute resolution panel or court of
competent jurisdiction within the United States, has agreed to comply with
all requirements necessary to give such court or panel jurisdiction, has
designated an agent upon whom service of process may be effected, and
has agreed to abide by the final decision of such court or panel.
Section 15
Contracts Affected
All new and renewal reinsurance contracts and transactions entered into after
December 18, 1992 shall conform to the requirements of the Act and this Regulation if
credit is to be given to the ceding insurer for such reinsurance.
EFFECTIVE DATE:
May 16, 1993
AMENDED:
July 23, 1996
REFILED:
December 19, 2001
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FORM AR-1
CERTIFICATE OF ASSUMING INSURER
I,
(name of officer)
(title of officer)
of
(name of assuming insurer)
, the assuming insurer, under a reinsurance
agreement(s) with one or more insurers domiciled in
(name of state)
,
hereby certify that
(name of assuming insurer) ("Assuming Insurer"):
1.
Submits to the jurisdiction of any court of competent jurisdiction in
(ceding insurer's state of domicile)
for the adjudication of any issues arising out
of the reinsurance agreement(s), agrees to comply with all requirements necessary
to give such court jurisdiction, and will abide by the final decision of such court
or any appellate court in the event of an appeal. Nothing in this paragraph
constitutes or should be understood to constitute a waiver of Assuming Insurer's
rights to commence an action in any court of competent jurisdiction in the United
States, to remove an action to a United States District Court, or to seek a transfer
of a case to another court as permitted by the laws of the United States or of any
state in the United States. This paragraph is not intended to conflict with or
override the obligation of the parties to the reinsurance agreement(s) to arbitrate
their disputes if such an obligation is created in the agreement(s).
2.
Designates the Insurance Commissioner of
(ceding insurer's state of
domicile)
as its lawful attorney upon whom may be served any lawful
process in any action, suit or proceeding arising out of the reinsurance
agreement(s) instituted by or on behalf of the ceding insurer.
3.
Submits to the authority of the Insurance Commissioner of
(ceding
insurer's state of domicile)
to examine its books and records and agrees to bear
the expense of any such examination.
4.
Submits with this form a current list of insurers domiciled in
(ceding
insurer's state of domicile
reinsured by Assuming Insurer) and undertakes to
submit additions to or deletions from the list to the Insurance Commissioner at
least once per calendar quarter.
Dated: ________________________________
______________________________________
(name of assuming insurer)
BY:
______________________________
(name of officer)
______________________________
(title of officer)
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