2006 Utah Code - 31A-17-404 — Credit against reserves for reinsurance ceded.

     31A-17-404.   Credit against reserves for reinsurance ceded.
     (1) Credit for reinsurance is allowed a ceding insurer as either an asset or a deduction from liability for reinsurance ceded only if:
     (a) the reinsurance contract and the accounting for the reinsurance transaction conform to the requirements of Subsection (2);
     (b) one or more of the security factors under Subsection (3) is present, or the transaction is of the type described in Subsection (6); and
     (c) the assuming insurer has submitted to the jurisdiction of courts in this state in a manner consistent with Subsection (7).
     (2) Credit for reinsurance ceded may be granted the ceding insurer:
     (a) only if the reinsurance is payable in a manner consistent with Section 31A-22-1201;
     (b) only to the extent that the accounting is consistent with the terms of the reinsurance treaty and clearly reflects the amount and nature of risk transferred and any liability, including contingent liability, of the ceding insurer;
     (c) only to the extent the reinsurance contract shifts insurance policy risk from the ceding insurer to the assuming reinsurer in fact and not merely in form; and
     (d) only if the reinsurance contract contains a provision placing on the reinsurer the credit risk of all dealings with intermediaries regarding the contract.
     (3) Except as modified for reinsurance pools under Subsection (5), the requirement under Subsection (1)(b) that a security factor be present is satisfied if:
     (a) the reinsurer is authorized to do business in this state;
     (b) the reinsurer has deposited in trust under Section 31A-2-206, or a comparable provision of the law of another state of the United States, for the benefit of Utah insureds or a broader class of insureds that includes Utah insureds, an amount the Utah commissioner considers sufficient to provide for the reinsurer's total liabilities under the trust, with complete protection to Utah insureds;
     (c) the ceding insurer retains, as security for the payment of obligations under the reinsurance contract, funds belonging to the reinsurer, subject to withdrawal solely by the ceding insurer and under its exclusive control; but credit may be taken only to the extent the funds are:
     (i) cash or cash equivalents;
     (ii) securities approved by the commissioner, valued at market price;
     (iii) irrevocable and unconditional letters of credit which comply with rules adopted by the commissioner and are issued by a bank or trust company which is a member of the Federal Reserve system;
     (iv) additional forms of security approved by rule; or
     (v) a combination of Subsections (3)(c)(i) through (iv);
     (d) the reinsurer maintains a trust fund in a United States bank or trust company for the payment of the valid claims of its United States policyholders and ceding insurers, their assigns, and successors in interest in an amount and subject to the conditions provided in Subsection (4); or
     (e) the reinsurer is an authorized insurer in at least one state which the Utah commissioner designates by rule or order as having been found to enforce standards regarding credit for reinsurance substantially similar to those applicable under this section and which reinsurer conforms to the same standards of solvency which would be required of the reinsurer if it were authorized to do business in this state.

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     (4) (a) Trusts satisfying the security factor described in Subsection (3)(d) shall:
     (i) consist of a trust account in which is deposited amounts equal to the assuming insurer's liabilities attributable to business written in the United States and, in addition, surplus of not less than $20,000,000;
     (ii) if deposited by a group of individual unincorporated underwriters or a group of individual incorporated insurers, consist of a trust account in which is deposited amounts equal to the group's liabilities attributable to business written in the United States and, in addition, surplus of not less than $100,000,000, with the group making available to the commissioner an annual solvency certification by the group's domiciliary regulator and its independent public accountant;
     (iii) be established in a United States bank or trust company which is a member of the Federal Reserve system; and
     (iv) be in a form approved by the commissioner, with trust documents which:
     (A) provide that contested claims are valid and enforceable upon the final order of any court of competent jurisdiction in the United States;
     (B) 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;
     (C) subject the trust and the reinsurer to examination by the commissioner; and
     (D) provide that the trust remains in effect for as long as the reinsurer has outstanding obligations due under the reinsurance agreements subject to the trust.
     (b) To determine the sufficiency of the trust funds, reinsurers maintaining a trust under Subsection (3)(d) shall annually report to the commissioner information substantially the same as that required to be reported by authorized insurers on the National Association of Insurance Commissioner's Annual Statement form described in Section 31A-4-113. This report shall be submitted to the commissioner no later than March 1 of each year and shall be accompanied by written statements disclosing the preceding year-end trust balance, summarizing the trust's investments at the preceding year-end, and certifying the termination date of the trust, if trust termination is planned, or that the trust shall not expire prior to the next following December 31.
     (5) If a ceding insurer has entered into a reinsurance agreement satisfying the requirements of Subsection (2) and if the reinsurer under the agreement is a pool of reinsurers, and if any of the members of the reinsurance pool do not satisfy one of the alternate security factors specified in Subsection (3), then the reserve credit for reinsurance is allowed only to the extent that the reinsurance risk is borne by members of the reinsurance pool that have satisfied one or more of the alternate security factors specified in Subsection (3).
     (6) The security factor requirement of Subsections (1)(b) and (3) need not be satisfied as a condition to receiving a reserve credit to the extent that:
     (a) the risks reinsured are located in jurisdictions other than the United States; and
     (b) the reinsurance is required by applicable law or regulation of that jurisdiction.
     (7) No reinsurance credit may be allowed the ceding insurer unless the assuming insurer under the reinsurance contract has submitted to the jurisdiction of Utah courts by either:
     (a) being an admitted insurer, and submitting to jurisdiction under Section 31A-2-309;
     (b) having irrevocably appointed the commissioner as his agent for service of process in any action arising out of or in connection with the reinsurance, which appointment is made under Section 31A-2-309; or
     (c) agreeing in the reinsurance contract:
     (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, 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
     (ii) to designate the commissioner or a designated attorney with offices in this state 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.
     (8) Submitting to the jurisdiction of Utah courts under Subsection (7) does not override the duties or rights of the parties under a provision in the reinsurance agreement, including any requirement that the parties arbitrate their disputes.

Amended by Chapter 230, 1992 General Session