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304.5-140 Reinsurance.
(1)
(2)
(a)
For the purposes of subsection (3)(c) of this section, a "qualified United
States financial institution" means an institution that:
1.
Is organized or, in the case of a United States office of a foreign
banking organization, licensed under the laws of the United States
or any state thereof;
2.
Is regulated, supervised, and examined by the United States federal
or state authorities having regulatory authority over banks and trust
companies; and
3.
Has been determined by the commissioner, or the Securities
Valuation Office of the National Association of Insurance
Commissioners, to meet the standards of financial condition and
standing considered necessary and appropriate to regulate the
quality of financial institutions whose letters of credit will be
acceptable to the commissioner.
(b) A "qualified United States 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:
1.
Is organized or, in the case of a United States 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
2.
Is regulated, supervised, and examined by federal or state
authorities having regulatory authority over banks and trust
companies.
Credit for reinsurance shall be allowed a ceding insurer as either an asset or a
deduction from liability on account of reinsurance ceded only when the
reinsurer meets the requirements of paragraphs (a), (b), (c), (d), or (e) of this
subsection. If meeting the requirements of paragraphs (c) or (d) of this
subsection, the requirements of paragraph (f) of this subsection shall also be
met.
(a) Credit shall be allowed when the reinsurance is ceded to an assuming
insurer which is authorized to transact insurance or reinsurance in
Kentucky.
(b) Credit shall be allowed when the reinsurance is ceded to an assuming
insurer which is accredited as a reinsurer in Kentucky. An accredited
reinsurer is one which:
1.
Files with the commissioner evidence of its submission to
Kentucky's jurisdiction;
2.
Submits to Kentucky's authority to examine its books and records;
3.
Is licensed to transact insurance or reinsurance in at least one (1)
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 (1) state;
4.
Files annually with the commissioner a copy of its annual statement
filed with the insurance regulatory official of its state of domicile and
a copy of its most recent audited financial statement, and either:
a.
Maintains a surplus as regards policyholders in an amount
which is 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
b.
Maintains a surplus as regards policyholders in an amount less
than twenty million dollars ($20,000,000) and whose
accreditation has been approved by the commissioner.
5.
Credit shall not be allowed a ceding insurer under this paragraph if
the assuming insurer's accreditation has been revoked by the
commissioner after notice and hearing.
(c) Credit shall be allowed when the reinsurance is ceded to an assuming
insurer which is domiciled and licensed in or, in the case of a United
States branch of an alien assuming insurer, is entered through a state
which employs standards regarding credit for reinsurance substantially
similar to those applicable under this section and the assuming insurer or
United States branch of an alien insurer:
1.
Maintains a surplus as regards policyholders in an amount not less
than twenty million dollars ($20,000,000); and
2.
Submits to the authority of the commissioner to examine its books
and records.
However, subparagraph 1. of this paragraph shall not apply to
reinsurance ceded and assumed pursuant to pooling arrangements
among insurers in the same holding company system.
(d) 1.
Credit shall be allowed when the reinsurance is ceded to an
assuming insurer which maintains a trust fund in a qualified United
States financial institution for the payment of 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 information substantially the same as that
required to be reported on the National Association of Insurance
Commissioners annual statement form by authorized insurers to
enable the commissioner to determine the sufficiency of the trust
fund. In the case of a single assuming insurer, the trust fund shall
consist of a trusteed account representing the assuming insurer's
liabilities attributable to business written in the United States and, in
addition, the assuming insurer shall maintain a trusteed surplus of
not less than twenty million dollars ($20,000,000). In the case of a
group including incorporated and individual unincorporated
underwriters, the trust shall consist of a trusteed account
representing the group's 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 United States ceding insurers
of any member of the group, the incorporated members of which
group shall not be engaged in any business other than underwriting
(e)
as a member of the group and shall be subject to the same level of
solvency regulation and control by the group's domiciliary regulator
as are the unincorporated members; and the group shall make
available to the commissioner an annual certification of the solvency
of each underwriter by the group's domiciliary insurance regulatory
official and its independent public accountants.
2.
In the case of a group of incorporated insurers under common
administration which complies with the filing requirements contained
in subparagraph 1. of this paragraph, and which is under the
supervision of the Department of Trade and Industry of the United
Kingdom and submits to the commissioner's authority to examine its
books and records and bears the expense of the estimation, and
which has aggregate policyholders' surplus of ten billion dollars
($10,000,000,000), the trust shall be in an amount equal to the
group's several liabilities attributable to business written in the
United States plus 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, and each member of the group shall make available to
the commissioner an annual certification of the member's solvency
by the member's domiciliary insurance regulatory official and its
independent public accountant.
3.
The trust shall be established in a form approved by the
commissioner. 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 the trustees of the trust for its United
States policyholders and ceding insurers, their assigns, and
successors in interest. The trust and the assuming insurer shall be
subject to examination as determined by the commissioner. The
trust shall remain in effect for as long as the assuming insurer shall
have outstanding obligations due under the reinsurance agreements
subject to the trust.
4.
No later than February 28 of each year, the trustees of the trust
shall report to the commissioner in writing setting forth the balance
of 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.
Credit shall be allowed when the reinsurance is ceded to an assuming
insurer not meeting the requirements of paragraphs (a), (b), (c), or (d) of
this subsection, but only with respect to the insurance of risks located in
jurisdictions where such reinsurance is required by applicable law or
regulation of that jurisdiction or reinsurance ceded to a residual market
mechanism reinsurance association, or the members thereof, created
pursuant to law or which has been voluntarily created as such by its
members with the approval of the commissioner.
(f)
(3)
(4)
(5)
If the assuming insurer is not authorized or accredited to transact
insurance or reinsurance in Kentucky, the credit permitted by paragraphs
(c) and (d) of this subsection shall not be allowed unless the assuming
insurer agrees in the reinsurance agreements:
1.
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, shall comply with all requirements necessary to
give the court jurisdiction, and shall abide by the final decision of the
court or of any appellate court in the event of an appeal; and
2.
To designate the Secretary of State 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 insurer.
This paragraph 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.
A reduction from liability for the reinsurance ceded by an insurer to an
assuming insurer not meeting the requirements of subsection (2) of this section
shall be allowed in an amount not exceeding the liabilities carried by the ceding
insurer and 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 the assuming insurer as security for the payment of
obligations thereunder, if the security 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 United States financial institution. This
security may be in the form of:
(a) Cash;
(b) Securities listed by the Securities Valuation Office of the National
Association of Insurance Commissioners and qualifying as admitted
assets;
(c) Clean, irrevocable, unconditional letters of credit issued or confirmed by a
qualified United States financial institution no later than December 31 in
respect of the year for which filing is being made, and in the possession of
the ceding insurer on or before the filing date of its annual statement.
Letters of credit meeting applicable standards of issuer acceptability as of
the dates of their issuance, or confirmation, 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
(d) Any other form of security acceptable to the commissioner.
Cession of bulk reinsurance by a domestic insurer is subject to KRS
304.24-420.
(a) Credit shall be allowed as an asset or as a deduction from liability, to any
(6)
(7)
ceding insurer for reinsurance ceded to an assuming insurer qualified
therefor under subsections (2), (3), or (4) of this section, except that no
such credit shall be allowed unless the reinsurance contract provides, in
substance, that in the event of the insolvency of the ceding insurer, the
reinsurance shall be payable under a contract reinsured by the assuming
insurer on the basis of reported claims allowed by the liquidation court,
without diminution because of the insolvency of the ceding insurer. Such
payments shall be made directly to the ceding insurer or to its domiciliary
liquidator except:
1.
Where the contract or other written agreement specifically provides
another payee of such reinsurance in the event of the insolvency of
the ceding insurer; or
2.
Where the assuming insurer, with the consent of the direct insured,
has assumed such policy obligations of the ceding insurer as direct
obligations of the assuming insurer to the payees under such
policies and in substitution for the obligations of the ceding insurer to
such payees.
(b) The reinsurance agreement may provide that the domiciliary liquidator of
an insolvent ceding insurer shall give written notice to the assuming
insurer of the pendency of a claim against such ceding insurer on the
contract reinsured within a reasonable time after such claim is filed in the
liquidation proceeding. During the pendency of such claim, any assuming
insurer may investigate such claim and interpose, at its own expense, in
the proceeding where such claim is to be adjudicated, any defenses
which it deems available to the ceding insurer or its liquidator. Such
expense may be filed as a claim against the insolvent ceding insurer to
the extent of a proportionate share of the benefit which may accrue to the
ceding insurer solely as a result of the defense undertaken by the
assuming insurer. Where two (2) or more assuming insurers are involved
in the same claim and a majority in interest elect to interpose a defense to
such claim, the expense shall be apportioned in accordance with the
terms of the reinsurance agreement as though such expense had been
incurred by the ceding insurer.
Upon request of the commissioner an insurer shall promptly inform the
commissioner in writing of the cancellation or any other material change of any
of its reinsurance treaties or arrangements.
Subsections (1) to (3) of this section shall apply to all cessions after July 14,
1992, under reinsurance agreements which have had an inception,
anniversary, or renewal date not less than six (6) months after July 14, 1992.
Effective:July 15, 2010
History: Amended 2010 Ky. Acts ch. 24, sec. 993, effective July 15, 2010. -Amended 2004 Ky. Acts ch. 125, sec. 1, effective July 13, 2004. -- Amended
1994 Ky. Acts ch. 92, sec. 11, effective July 15, 1994. Amended 1992 Ky. Acts
ch. 156, sec. 1, effective July 14, 1992. -- Amended 1986 Ky. Acts ch. 437,
sec. 9, effective July 15, 1986. -- Created 1970 Ky. Acts ch. 301, subtit. 5,
sec. 14, effective June 18, 1970.
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