Vermont § 3634a - Credit for reinsurance

§ 3634a. Credit for reinsurance

• (a) Purpose. It is the purpose of this section to protect the interest of insureds, claimants,
  ceding insurers, assuming insurers, and the public generally. The General Assembly
  hereby declares its intent is to ensure adequate regulation of insurers and reinsurers
  and adequate protection for those to whom they owe obligations. In furtherance of
  that State interest, the General Assembly hereby provides a mandate that upon the
  insolvency of a non-U.S. insurer or reinsurer that provides security to fund its U.S.
  obligations in accordance with this section, the assets representing the security
  shall be maintained in the United States and claims shall be filed with and valued
  by the state insurance Commissioner with regulatory oversight, and the assets shall
  be distributed in accordance with the insurance laws of the state in which the trust
  is domiciled that are applicable to the liquidation of domestic U.S. insurance companies.
  The General Assembly declares that the matters contained in this section are fundamental
  to the business of insurance in accordance with 15 U.S.C. §§ 1011-1012. (b) Credit allowed a domestic ceding insurer. Credit for reinsurance shall be allowed a domestic ceding insurer as either an asset
  or a reduction from liability on account of reinsurance ceded only when the reinsurer
  meets the requirements of subdivision (1), (2), (3), (4), (5), (6), or (7) of this
  subsection (b), provided that the Commissioner may adopt by rule or regulation pursuant
  to subdivision (e)(2) of this section specific additional requirements relating to
  any or all of the following: the valuation of assets or reserve credits, the amount
  and forms of security supporting reinsurance arrangements described in subdivision
  (e)(2) of this section, or the circumstances pursuant to which credit will be reduced
  or eliminated. Credit shall be allowed under subdivision (1), (2), or (3) of this
  subsection (b) only with respect to cessions of those kinds or classes of business
  that the assuming insurer is licensed or otherwise permitted to write or assume in
  its state of domicile or, in the case of a U.S. branch of an alien assuming insurer,
  in the state through which it is entered and licensed to transact insurance or reinsurance.
  Credit shall be allowed under subdivision (3) or (4) of this subsection (b) only if
  the applicable requirements of subdivision (8) of this subsection (b) have been satisfied. (1) Credit shall be allowed when the reinsurance is ceded to an assuming insurer that
  is licensed to transact insurance or reinsurance in this State. (2) Credit shall be allowed when the reinsurance is ceded to an assuming insurer that
  is accredited by the Commissioner as a reinsurer in this State. An accredited reinsurer
  is one that: (A) files with the Commissioner evidence of its submission to this State’s jurisdiction; (B) submits to this State’s authority to examine its books and records; (C) is licensed to transact insurance or reinsurance in at least one state or, in the
  case of a U.S. branch of an alien assuming insurer, is entered through and licensed
  to transact insurance or reinsurance in at least one state; (D) files annually with the Commissioner a copy of its annual statement filed with the
  insurance department of its state of domicile and a copy of its most recent audited
  financial statement; (E) files with the Commissioner its charter, bylaws, and any other material required by
  the Commissioner; (F) pays an initial fee of $500.00 and thereafter an annual fee of $200.00 on or before
  March 1 of each year; and (G) demonstrates to the satisfaction of the Commissioner that it has adequate financial
  capacity to meet its reinsurance obligations and is otherwise qualified to assume
  reinsurance from domestic insurers. An assuming insurer is deemed to meet this requirement,
  provided that at the time of its application it: (i) maintains a surplus for policyholders that is not less than $20,000,000.00 and whose
  accreditation has not been denied by the Commissioner within 90 days following its
  submission; or (ii) maintains a surplus for policyholders in an amount less than $20,000,000.00 and whose
  accreditation has been approved the Commissioner. (3)(A) Credit shall be allowed when the reinsurance is ceded to an assuming insurer that
  is domiciled and licensed in, or in the case of a U.S. branch of an alien assuming
  insurer is entered through, a state that employs standards regarding credit for reinsurance
  substantially similar to those applicable under this statute and the assuming insurer
  or U.S. branch of an alien assuming insurer: (i) maintains a surplus for policyholders in an amount not less than $20,000,000.00; and (ii) submits to the authority of this State to examine its books and records. (B) The requirement of subdivision (A)(i) of this subdivision (b)(3) does not apply to
  reinsurance ceded and assumed pursuant to pooling arrangements among insurers in the
  same holding company system. (4)(A) Credit shall be allowed when the reinsurance is ceded to an assuming insurer that
  maintains a trust fund in a qualified U.S. financial institution, as defined in subdivision
  (d)(2) of this section, for the payment of the valid claims of its U.S. ceding insurers,
  their assigns, and successors in interest. The assuming insurer shall report annually
  to the Commissioner information required by the Commissioner and substantially the
  same as that required to be reported on the National Association of Insurance Commissioners’
  Annual Statement form by licensed insurers to enable the Commissioner to determine
  the sufficiency of the trust fund. The assuming insurer shall submit to examination
  of its books and records by the Commissioner and bear the expense of the examination. (B)(i) Credit for reinsurance shall not be granted under this subsection (b) unless the form
  of the trust and any amendments to the trust have been approved by: (I) the commissioner of the state where the trust is domiciled; or (II) the commissioner of another state who, pursuant to the terms of the trust instrument,
  has accepted principal regulatory oversight of the trust. (ii) The form of the trust and any trust amendments also shall be filed with the commissioner
  of every state in which the ceding insurer beneficiaries of the trust are domiciled.
  The trust instrument shall provide that contested claims shall be valid and enforceable
  upon the final order of any court of competent jurisdiction in the United States.
  The trust shall vest legal title to its assets in its trustees for the benefit of
  the assuming insurer’s U.S. ceding insurers, their assigns, and successors in interest.
  The trust and the assuming insurer shall be subject to examination as determined by
  the Commissioner. (iii) The trust shall remain in effect for as long as the assuming insurer has outstanding
  obligations due under the reinsurance agreements subject to the trust. Not later than
  February 28 of each year, the trustee of the trust shall report to the Commissioner
  in writing the balance of the trust and a list of the trust’s investments at the preceding
  year-end and shall certify the date of termination of the trust, if so planned, or
  certify that the trust will not expire prior to the following December 31. (C) The following requirements shall apply to the following categories of assuming insurer: (i) In the case of a single assuming insurer, the trust fund shall consist of funds in
  trust in an amount not less than the assuming insurer’s liabilities attributable to
  reinsurance ceded by U.S. ceding insurers, and, in addition, the assuming insurer
  shall maintain a trusteed surplus of not less than $20,000,000.00, except 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 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 30
  percent of the assuming insurer’s liabilities attributable to reinsurance ceded by
  U.S. ceding insurers covered by the trust. (ii)(I) In the case of a group including incorporated and individual unincorporated underwriters: (aa) for reinsurance ceded under reinsurance agreements with an inception, amendment, or
  renewal date on or after January 1, 1993, the trust shall consist of a trusted account
  in an amount not less than the respective underwriters’ several liabilities attributable
  to business ceded by U.S. domiciled ceding insurers to any underwriter of the group; (bb) for reinsurance ceded under reinsurance agreements with an inception date on or before
  December 31, 1992, and not amended or renewed after that date, notwithstanding the
  other provisions of this section, the trust shall consist of a trusteed account in
  an amount not less than the respective underwriters’ several insurance and reinsurance
  liabilities attributable to business written in the United States; and (cc) in addition to the trusts specified in subdivisions (aa) and (bb) of this subdivision
  (C)(ii)(I), the group shall maintain in trust a trusteed surplus of which $100,000,000.00
  shall be held jointly for the benefit of U.S. domiciled ceding insurers of any member
  of the group for all years of the account. (II) The incorporated members of the group shall not engage 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. (III) Within 90 days after its financial statements are due to be filed with the group’s
  domiciliary regulator, the group shall provide to the Commissioner an annual certification
  of the solvency of each underwriter member by the group’s domiciliary regulator or,
  if certification is unavailable, financial statements prepared by independent public
  accountants of each underwriter member of the group. (iii) In the case of a group of incorporated insurers under common administration, the group
  shall: (I) have continuously transacted an insurance business outside the United States for at
  least three years immediately prior to making application for accreditation; (II) maintain aggregate policyholders’ surplus of at least $10,000,000,000.00; (III) maintain a trust fund in an amount not less than the group’s several liabilities attributable
  to business ceded by U.S. domiciled ceding insurers to any member of the group pursuant
  to reinsurance contracts issued in the name of such group; (IV) maintain a joint trusteed surplus of which $100,000,000.00 shall be held jointly for
  the benefit of U.S. domiciled ceding insurers of any member of the group as additional
  security for liabilities; and (V) within 90 days after its financial statements are due to be filed with the group’s
  domiciliary regulator, make available to the Commissioner an annual certification
  of each underwriter member’s solvency by the member’s domiciliary regulator and financial
  statements of each underwriter member of the group prepared by an independent public
  accountant. (5) Credit shall be allowed when the reinsurance is ceded to an assuming insurer that
  has been certified by the Commissioner as a reinsurer in this State and secures its
  obligations in accordance with the requirements of this subdivision. (A) In order to be eligible for certification, the assuming insurer shall: (i) be domiciled and licensed to transact insurance or reinsurance in a qualified jurisdiction,
  as determined by the Commissioner under subdivision (C) of this subdivision (5); (ii) maintain minimum capital and surplus, or its equivalent, in an amount to be determined
  by the Commissioner by rule or regulation; (iii) maintain financial strength ratings from two or more rating agencies deemed acceptable
  by the Commissioner by rule or regulation; (iv) agree to submit to the jurisdiction of this State, appoint the Commissioner as its
  agent for service of process in this State, and agree to provide security for 100
  percent of the assuming insurer’s liabilities attributable to reinsurance ceded by
  U.S. ceding insurers if it resists enforcement of a final U.S. judgment; (v) agree to meet applicable information filing requirements as determined by the Commissioner,
  both with respect to an initial application for certification and on an ongoing basis;
  and (vi) satisfy any other requirements for certification deemed relevant by the Commissioner. (B) An association, including incorporated and individual unincorporated underwriters,
  may be a certified reinsurer. In order to be eligible for certification, in addition
  to satisfying the requirements of subdivision (A) of this subdivision (5): (i) The association shall satisfy its minimum capital and surplus requirements through
  the capital and surplus equivalents, net of liabilities, of the association and its
  members, which shall include a joint central fund that may be applied to any unsatisfied
  obligation of the association or any of its members, in an amount determined by the
  Commissioner to provide adequate protection. (ii) The incorporated members of the association shall not be engaged in any business other
  than underwriting as a member of the association and shall be subject to the same
  level of regulation and solvency control by the association’s domiciliary regulator
  as are the unincorporated members. (iii) Within 90 days after its financial statements are due to be filed with the association’s
  domiciliary regulator, the association shall provide to the Commissioner an annual
  certification by the association’s domiciliary regulator of the solvency of each underwriter
  member or, if a certification is unavailable, financial statements, prepared by independent
  public accountants, of each underwriter member of the association. (C) The Commissioner shall create and publish a list of qualified jurisdictions under
  which an assuming insurer licensed and domiciled in such jurisdiction is eligible
  to be considered for certification by the Commissioner as a certified reinsurer. (i) In order to determine whether the domiciliary jurisdiction of a non-U.S. assuming
  insurer is eligible to be recognized as a qualified jurisdiction, the Commissioner
  shall evaluate the appropriateness and effectiveness of the reinsurance supervisory
  system of the jurisdiction, both initially and on an ongoing basis, and consider the
  rights, benefits, and extent of reciprocal recognition afforded by the non-U.S. jurisdiction
  to reinsurers licensed and domiciled in the United States. A qualified jurisdiction
  shall agree to share information and cooperate with the Commissioner with respect
  to all certified reinsurers domiciled within that jurisdiction. A jurisdiction may
  not be recognized as a qualified jurisdiction if the Commissioner has determined that
  the jurisdiction does not adequately and promptly enforce final U.S. judgments and
  arbitration awards. Additional factors may be considered in the discretion of the
  Commissioner. (ii) A list of qualified jurisdictions shall be published through the NAIC committee process.
  The Commissioner shall consider this list in determining qualified jurisdictions.
  If the Commissioner approves a jurisdiction as qualified that does not appear on the
  list of qualified jurisdictions, the Commissioner shall provide thoroughly documented
  justification in accordance with criteria to be developed by rule or regulation. (iii) U.S. jurisdictions that meet the requirement for accreditation under the NAIC financial
  standards and accreditation program shall be recognized as qualified jurisdictions. (iv) If a certified reinsurer’s domiciliary jurisdiction ceases to be a qualified jurisdiction,
  the Commissioner has the discretion to suspend the reinsurer’s certification indefinitely,
  in lieu of revocation. (D) The Commissioner shall assign a rating to each certified reinsurer, giving due consideration
  to the financial strength ratings that have been assigned by rating agencies deemed
  acceptable to the Commissioner by rule or regulation. The Commissioner shall publish
  a list of all certified reinsurers and their ratings. (E) A certified reinsurer shall secure obligations assumed from U.S. ceding insurers under
  this subsection (b) at a level consistent with its rating, as specified in rules or
  regulations adopted by the Commissioner. (i) In order for a domestic ceding insurer to qualify for full financial statement credit
  for reinsurance ceded to a certified reinsurer, the certified reinsurer shall maintain
  security in a form acceptable to the Commissioner and consistent with the provisions
  of subsection (c) of this section or in a multibeneficiary trust in accordance with
  subdivision (4) of this subsection (b), except as otherwise provided in this subdivision. (ii) If a certified reinsurer maintains a trust to fully secure its obligations subject
  to subdivision (4) of this subsection (b) and chooses to secure its obligations incurred
  as a certified reinsurer in the form of a multibeneficiary trust, the certified reinsurer
  shall maintain separate trust accounts for its obligations incurred under reinsurance
  agreements issued or renewed as a certified reinsurer with reduced security as permitted
  by this subsection (b) or comparable laws of other U.S. jurisdictions and for its
  obligations subject to subdivision (4) of this subsection. It shall be a condition
  to the grant of certification under this subdivision (b)(5) that the certified reinsurer
  shall have bound itself, by the language of the trust and agreement with the Commissioner
  with principal regulatory oversight of each such trust account, to fund, upon termination
  of any such trust account, out of the remaining surplus of such trust any deficiency
  of any other such trust account. (iii) The minimum trusteed surplus requirements provided in subdivision (4) of this subsection
  (b) are not applicable with respect to a multibeneficiary trust maintained by a certified
  reinsurer for the purpose of securing obligations incurred under this subdivision
  (5)(E), except that such trust shall maintain a minimum trusteed surplus of $10,000,000.00. (iv) With respect to obligations incurred by a certified reinsurer under this subdivision
  (5)(E), if the security is insufficient, the Commissioner shall reduce the allowable
  credit by an amount proportionate to the deficiency and has the discretion to impose
  further reductions in allowable credit upon finding that there is a material risk
  that the certified reinsurer’s obligations will not be paid in full when due. (v) For purposes of this subdivision (5), a certified reinsurer whose certification has
  been terminated for any reason shall be treated as a certified reinsurer required
  to secure 100 percent of its obligations. (I) As used in this subdivision (5), the term “terminated” refers to revocation, suspension,
  voluntary surrender, and inactive status. (II) If the Commissioner continues to assign a higher rating as permitted by other provisions
  of this section, this requirement does not apply to a certified reinsurer in inactive
  status or to a reinsurer whose certification has been suspended. (F) If an applicant for certification has been certified as a reinsurer in an NAIC-accredited
  jurisdiction, the Commissioner has the discretion to defer to that jurisdiction’s
  certification and has the discretion to defer to the rating assigned by that jurisdiction,
  and such assuming insurer shall be considered to be a certified reinsurer in this
  State. (G) A certified reinsurer that ceases to assume new business in this State may request
  to maintain its certification in inactive status in order to continue to qualify for
  a reduction in security for its in-force business. An inactive certified reinsurer
  shall continue to comply with all applicable requirements of this subsection (b),
  and the Commissioner shall assign a rating that takes into account, if relevant, the
  reasons why the reinsurer is not assuming new business. (6)(A) Credit shall be allowed when the reinsurance is ceded to an assuming insurer meeting
  each of the conditions set forth below: (i) The assuming insurer shall have its head office or be domiciled in, as applicable,
  and be licensed in a reciprocal jurisdiction. As used in this section, “reciprocal
  jurisdiction” means a jurisdiction that meets one of the following: (I) a non-U.S. 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 European Union, is a member state of the European Union.
  As used in this subdivision (b)(6), a “covered agreement” means an agreement entered
  into pursuant to Dodd-Frank Wall Street Reform and Consumer Protection Act, 31 U.S.C. §§ 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; (II) a U.S. jurisdiction that meets the requirements for accreditation under the NAIC financial
  standards and accreditation program; or (III) a qualified jurisdiction, as determined by the Commissioner pursuant to subdivision
  (5)(C) of this subsection (b), that is not otherwise described in subdivision (6)(A)(i)(I)
  or (6)(A)(i)(II) of this subsection (b) and that meets certain additional requirements,
  consistent with the terms and conditions of in-force covered agreements, as specified
  by the Commissioner in rule or regulation. (ii) The assuming insurer must have and maintain, on an ongoing basis, minimum capital
  and surplus, or its equivalent, calculated according to the methodology of its domiciliary
  jurisdiction, in an amount to be set forth in rule or regulation. If the assuming
  insurer is an association, including incorporated and individual unincorporated underwriters,
  it must have and maintain, on an ongoing basis, minimum capital and surplus equivalents,
  net of liabilities, calculated according to the methodology applicable in its domiciliary
  jurisdiction, and a central fund containing a balance in amounts to be set forth in
  rule or regulation. (iii) The assuming insurer must have and maintain, on an ongoing basis, a minimum solvency
  or capital ratio, as applicable, which will be set forth in rule or regulation. If
  the assuming insurer is an association, including incorporated and individual unincorporated
  underwriters, it must have and maintain, on an ongoing basis, a minimum solvency or
  capital ratio in the reciprocal jurisdiction where the assuming insurer has its head
  office or is domiciled, as applicable, and is also licensed. (iv) The assuming insurer must agree and provide adequate assurance to the Commissioner,
  in a form specified in rule or regulation by the Commissioner, of the following: (I) The assuming insurer must provide prompt written notice and explanation to the Commissioner
  if it falls below the minimum requirements set forth in subdivision (6)(A)(ii) or
  (6)(A)(iii) of this subsection (b) or if any regulatory action is taken against it
  for serious noncompliance with applicable law. (II) 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.
  The Commissioner may require that consent for service of process be provided to the
  Commissioner and included in each reinsurance agreement. Nothing in this subdivision
  (6)(A)(iv)(II) 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. (III) The assuming insurer must consent in writing to pay all final judgments, wherever
  enforcement is sought, obtained by a ceding insurer or its legal successor, that have
  been declared enforceable in the jurisdiction where the judgment was obtained. (IV) Each reinsurance agreement must include a provision requiring the assuming insurer
  to provide security in an amount equal to 100 percent of the assuming insurer’s liabilities
  attributable to reinsurance ceded 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 resolution estate. (V) The assuming insurer must confirm that it is not presently participating in any solvent
  scheme of arrangement that involves this State’s ceding insurers, and agree to notify
  the ceding insurer and the Commissioner and to provide security in an amount equal
  to 100 percent of the assuming insurer’s liabilities to the ceding insurer, should
  the assuming insurer enter into such a solvent scheme of arrangement. Such security
  shall be in a form consistent with the provisions of subdivision (b)(5) and subsection
  (c) of this section and as specified by the Commissioner in rule or regulation. (v) The assuming insurer or its legal successor must provide, if requested by the Commissioner,
  on behalf of itself and any legal predecessors, certain documentation to the Commissioner,
  as specified by the Commissioner in rule or regulation. (vi) The assuming insurer must maintain a practice of prompt payment of claims under reinsurance
  agreements, pursuant to criteria set forth in rule or regulation. (vii) The assuming insurer’s supervisory authority must confirm to the Commissioner on an
  annual basis, as of the preceding December 31 or at the annual date otherwise statutorily
  reported to the reciprocal jurisdiction, that the assuming insurer complies with the
  requirements set forth in subdivisions (ii) and (iii) of this subdivision (6)(A). (viii) Nothing in this subdivision (b)(6)(A) precludes an assuming insurer from providing
  the Commissioner with information on a voluntary basis. (B) The Commissioner shall timely create and publish a list of reciprocal jurisdictions. (i) A list of reciprocal jurisdictions is published through the NAIC committee process.
  The Commissioner’s list shall include any reciprocal jurisdiction as defined under
  subdivisions (A)(i)(I) and (II) of this subdivision (b)(6) and shall consider any
  other reciprocal jurisdiction included on the NAIC list. The Commissioner may approve
  a jurisdiction that does not appear on the NAIC list of reciprocal jurisdictions in
  accordance with criteria to be developed in rules or regulations adopted by the Commissioner. (ii) The Commissioner may remove a jurisdiction from the list of reciprocal jurisdictions
  upon a determination that the jurisdiction no longer meets the requirements of a reciprocal
  jurisdiction, in accordance with a process set forth in rules or regulations adopted
  by the Commissioner, except that the Commissioner shall not remove from the list a
  reciprocal jurisdiction as defined under subdivisions (A)(i)(I) and (II) of this subdivision
  (b)(6). Upon removal of a reciprocal jurisdiction from this list, credit for reinsurance
  ceded to an assuming insurer that has its home office or is domiciled in that jurisdiction
  shall be allowed, if otherwise allowed pursuant to this section. (C) The Commissioner shall timely create and publish a list of assuming insurers that
  have satisfied the conditions set forth in this subdivision (b)(6) and to which cessions
  shall be granted credit in accordance with this subdivision. The Commissioner may
  add an assuming insurer to such list if an NAIC-accredited jurisdiction has added
  such assuming insurer to a list of such assuming insurers or if, upon initial eligibility,
  the assuming insurer submits the information to the Commissioner as required under
  subdivision (A)(iv) of this subdivision (b)(6) and complies with any additional requirements
  that the Commissioner may impose by rule or regulation, except to the extent that
  they conflict with an applicable covered agreement. (D) If the Commissioner determines that an assuming insurer no longer meets one or more
  of the requirements under this subdivision (b)(6), the Commissioner may revoke or
  suspend the eligibility of the assuming insurer for recognition under this subdivision
  in accordance with procedures set forth in rule or regulation. (i) 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 subsection (c) of this section. (ii) 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 the Commissioner
  and consistent with the provisions of subsection (c) of this section. (E) 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 ceded liabilities. (F) Nothing in this subdivision (b)(6) shall limit or in any way alter the capacity of
  parties to a reinsurance agreement to agree on requirements for security or other
  terms in that reinsurance agreement, except as expressly prohibited by this section
  or other applicable law, rule, or regulation. (G)(i) Credit may be taken under this subsection (b) only for reinsurance agreements entered
  into, amended, or renewed on or after January 1, 2021 and only with respect to losses
  incurred and reserves reported on or after the later of: (I) the date on which the assuming insurer has met all eligibility requirements pursuant
  to subdivision (A) of this subdivision (b)(6); and (II) the effective date of the new reinsurance agreement, amendment, or renewal. (ii) This subdivision (b)(6)(G) does not alter or impair a ceding insurer’s right to take
  credit for reinsurance, to the extent that credit is not available under this subdivision
  (b)(6), provided the reinsurance qualifies for credit under any other applicable provision
  of this section. (iii) Nothing in this subdivision (b)(6) shall authorize an assuming insurer to withdraw
  or reduce the security provided under any reinsurance agreement except as permitted
  by the terms of the agreement. (iv) Nothing in this subdivision (b)(6) shall limit, or in any way alter, the capacity
  of parties to any reinsurance agreement to renegotiate the agreement. (7) Credit shall be allowed when the reinsurance is ceded to an assuming insurer not meeting
  the requirements of subdivision (1), (2), (3), (4), (5), or (6) of this subsection
  (b), but only as to the insurance of risks located in jurisdictions where the reinsurance
  is required by applicable law or regulation of that jurisdiction. (8) If the assuming insurer is not licensed or accredited or certified to transact insurance
  or reinsurance in this State, the credit permitted by subdivisions (3) and (4) of
  this subsection (b) shall not be allowed unless the assuming insurer agrees in the
  reinsurance agreements: (A)(i) That in the event of the failure of the assuming insurer to perform its obligations
  under the terms of the reinsurance agreement, the assuming insurer, at the request
  of the ceding insurer, shall submit to the jurisdiction of any court of competent
  jurisdiction in any state of the United States, will comply with all requirements
  necessary to give such court jurisdiction, and will abide by the final decision of
  such court or of any appellate court in the event of an appeal. (ii) To designate the Commissioner or a designated attorney as its true and lawful attorney
  upon whom may be served any lawful process in any action, suit, or proceeding instituted
  by or on behalf of the ceding company. (B) This subdivision (b)(8) is not intended to conflict with or override the obligation
  of the parties to a reinsurance agreement to arbitrate their disputes, if this obligation
  is created in the agreement. (9) If the assuming insurer does not meet the requirements of subdivision (1), (2), (3),
  or (6) of this subsection (b), the credit permitted by subdivision (4) or (5) of this
  subsection (b) shall not be allowed unless the assuming insurer agrees in the trust
  agreements to the following conditions: (A) Notwithstanding any other provisions in the trust instrument to the contrary, if the
  trust fund is inadequate because it contains an amount less than the amount required
  by subdivisions (4)(B)–(D) of this subsection (b) or if the grantor of the trust has
  been declared insolvent or placed into receivership, rehabilitation, liquidation,
  or similar proceedings under the laws of its state or country of domicile, the trustee
  shall comply with an order of the commissioner with regulatory oversight over the
  trust or with an order of a court of competent jurisdiction directing the trustee
  to transfer to the commissioner with regulatory oversight all of the assets of the
  trust fund. (B) The assets shall be distributed by and claims shall be filed with and valued by the
  commissioner with regulatory oversight in accordance with the laws of the state in
  which the trust is domiciled that are applicable to the liquidation of domestic insurance
  companies. (C) If the commissioner with regulatory oversight determines that the assets of the trust
  fund or any part thereof are not necessary to satisfy the claims of the U.S. ceding
  insurers of the grantor of the trust, the assets or part thereof shall be returned
  by the commissioner with regulatory oversight to the trustee for distribution in accordance
  with the trust agreement. (D) The grantor shall waive any right otherwise available to it under U.S. law that is
  inconsistent with this subdivision (b)(9). (10) If an accredited or certified reinsurer ceases to meet the requirements for accreditation
  or certification, the Commissioner may suspend or revoke the reinsurer’s accreditation
  or certification. (A) The Commissioner must give the reinsurer notice and opportunity for hearing. The Commissioner
  may suspend or revoke a reinsurer’s accreditation or certification without a hearing
  if: (i) the reinsurer waives its right to hearing; (ii) the Commissioner’s order is based on regulatory action by the reinsurer’s domiciliary
  jurisdiction or the voluntary surrender or termination of the reinsurer’s eligibility
  to transact insurance or reinsurance business in its domiciliary jurisdiction or in
  the primary certifying state of the reinsurer under subdivision (5)(F) of this subsection
  (b); or (iii) the Commissioner finds that an emergency requires immediate action, and a court of
  competent jurisdiction has not stayed the Commissioner’s action. (B) While a reinsurer’s accreditation or certification is suspended, no reinsurance contract
  issued or renewed after the effective date of the suspension qualifies for credit
  except to the extent that the reinsurer’s obligations under the contract are secured
  in accordance with subsection (c) of this section. If a reinsurer’s accreditation
  or certification is revoked, no credit for reinsurance may be granted after the effective
  date of the revocation except to the extent that the reinsurer’s obligations under
  the contract are secured in accordance with subdivision (5)(E) of this subsection
  (b) or subsection (c) of this section. (11) Concentration risk. (A) A ceding insurer shall take steps to manage its reinsurance recoverables proportionate
  to its own book of business. A domestic ceding insurer shall notify the Commissioner
  within 30 days after reinsurance recoverables from any single assuming insurer or
  group of affiliated assuming insurers exceeds 50 percent of the domestic ceding insurer’s
  last reported surplus to policyholders or after it is determined that reinsurance
  recoverables from any single assuming insurer or group of affiliated assuming insurers
  is likely to exceed this limit. The notification shall demonstrate that the exposure
  is safely managed by the domestic ceding insurer. (B) A ceding insurer shall take steps to diversify its reinsurance program. A domestic
  ceding insurer shall notify the Commissioner within 30 days after ceding to any single
  assuming insurer or group of affiliated assuming insurers more than 20 percent of
  the ceding insurer’s gross written premium in the prior calendar year or after it
  has determined that the reinsurance ceded to any single assuming insurer or group
  of affiliated assuming insurers is likely to exceed this limit. The notification shall
  demonstrate that the exposure is safely managed by the domestic ceding insurer. (c) Asset or reduction from liability for reinsurance ceded by a domestic insurer to an assuming insurer not meeting the requirements of subsection (b) of this section. An asset or a reduction from liability for the reinsurance ceded by a domestic insurer
  to an assuming insurer not meeting the requirements of subsection (b) of this section
  shall be allowed in an amount not exceeding the liabilities carried by the ceding
  insurer, provided that the Commissioner may adopt by rule or regulation pursuant to
  subdivision (e)(2) of this section specific additional requirements relating to or
  setting forth any or all of the following: the valuation of assets or reserve credits,
  the amount and forms of security supporting reinsurance arrangements described in
  subdivision (e)(2) of this section, and the circumstances pursuant to which credit
  will be reduced or eliminated. The reduction shall be in the amount of funds held
  by or on behalf of the ceding insurer, including funds held in trust for the ceding
  insurer, under a reinsurance contract with such assuming insurer as collateral for
  the payment of obligations thereunder, if such collateral is held in the United States
  subject to withdrawal solely by, and under the exclusive control of, the ceding insurer;
  or, in the case of a trust, held in a qualified U.S. financial institution, as defined
  in subdivision (d)(2) of this section. This security may be in the form of: (1) cash; (2) securities listed by the Securities Valuation Office of the National Association of
  Insurance Commissioners, including those deemed exempt from filing as defined by the
  Purposes and Procedures Manual of the Securities Valuation Office, and qualifying
  as admitted assets; (3) clean, irrevocable, unconditional letters of credit, issued or confirmed by a qualified
  U.S. financial institution as defined in subdivision (d)(1) of this section, which
  are effective not later than December 31 of the year for which filing is being made,
  and in the possession of, or in trust for, the ceding company on or before the filing
  date of its annual statement; (4) letters of credit meeting applicable standards of issuer acceptability as of the dates
  of their issuance or confirmation shall, notwithstanding the issuing or confirming
  institution’s subsequent failure to meet applicable standards of issuer acceptability,
  continue to be acceptable as security until their expiration, extension, renewal,
  modification, or amendment, whichever first occurs; or (5) any other form of collateral acceptable to the Commissioner. (d) Qualified U.S. financial institutions. (1) As used in subdivision (c)(3) of this section, a “qualified U.S. financial institution”
  means an institution that: (A) is organized or, in the case of a U.S. office of a foreign banking organization, licensed
  under the laws of the United States or any state thereof; (B) is regulated, supervised, and examined by federal or state authorities having regulatory
  authority over banks and trust companies; and (C) has been determined by either the Commissioner or the Securities Valuation Office
  of the National Association of Insurance Commissioners to meet such standards of financial
  condition and standing as are considered necessary and appropriate to regulate the
  quality of financial institutions whose letters of credit will be acceptable to the
  Commissioner. (2) A “qualified U.S. financial institution” means, for purposes of those provisions of
  this section specifying those institutions that are eligible to act as a fiduciary
  of a trust, an institution that is: (A) organized or, in the case of a U.S. branch or agency office of a foreign banking organization,
  licensed under the laws of the United States or any state thereof and has been granted
  authority to operate with fiduciary powers; and (B) regulated, supervised, and examined by federal or state authorities having regulatory
  authority over banks and trust companies. (e) Rules and regulations. (1) The Commissioner may adopt rules or regulations implementing the provisions of this
  section. (2)(A) The Commissioner may adopt rules or regulations applicable to reinsurance agreements.
  Such rules or regulations may apply only to reinsurance relating to: (i) life insurance policies with guaranteed nonlevel gross premiums or guaranteed nonlevel
  benefits; (ii) universal life insurance policies with provisions resulting in the ability of a policyholder
  to keep a policy in force over a secondary guarantee period; (iii) variable annuities with guaranteed death or living benefits; (iv) long-term care insurance policies; or (v) such other life and health insurance and annuity products as to which the NAIC adopts
  model regulatory requirements with respect to credit for reinsurance. (B) A rule or regulation adopted pursuant to subdivision (A)(i) or (ii) of this subdivision
  (e)(2) may apply to any treaty that contains: (i) policies issued on or after January 1, 2015; or (ii) policies issued prior to January 1, 2015, if risk pertaining to such pre-2015 policies
  is ceded in connection with the treaty, in whole or in part, on or after January 1,
  2015; or both. (3) A rule or regulation adopted pursuant to subdivision (2) of this subsection (e) may
  require the ceding insurer, in calculating the amounts or forms of security required
  to be held under regulations promulgated under this authority, to use the Valuation
  Manual adopted by the NAIC under Section 11B(1) of the NAIC Standard Valuation Law,
  including all amendments adopted by the NAIC and in effect on the date as of which
  the calculation is made, to the extent applicable. (4) A rule or regulation adopted pursuant to subdivision (2) of this subsection (e) shall
  not apply to cessions to an assuming insurer that: (A) meets the conditions set forth in subdivision (b)(6) of this section; (B) is certified in this State; or (C) maintains at least $250,000,000.00 in capital and surplus when determined in accordance
  with the NAIC Accounting Practices and Procedures Manual, including all amendments
  thereto adopted by the NAIC, excluding the impact of any permitted or prescribed practices;
  and is: (i) licensed in at least 26 states; or (ii) licensed in at least 10 states and licensed or accredited in a total of at least 35
  states. (5) The authority to adopt rules or regulations pursuant to subdivision (2) of this subsection
  (e) does not limit the Commissioner’s general authority to adopt rules or regulations
  pursuant to subdivision (1) of this subsection (e). (f) Reinsurance agreements affected. This section shall apply to all cessions after the effective date of this section
  under reinsurance agreements that have an inception, anniversary, or renewal date
  not less than six months after the effective date of this section. (Added 1991, No. 249 (Adj. Sess.), § 13; amended 1993, No. 12, § 6, eff. April 26, 1993; 1993, No. 235 (Adj. Sess.), § 1, eff. June 21, 1994; 1995, No. 180 (Adj. Sess.), § 38(a); 2007, No. 49, § 3; 2011, No. 78 (Adj. Sess.), § 2, eff. April 2, 2012; 2013, No. 121 (Adj. Sess.), § 1, eff. May 9, 2014; 2019, No. 103 (Adj. Sess.), § 12, eff. Jan. 1, 2021; 2021, No. 139 (Adj. Sess.), § 23, eff. May 27, 2022.)