Chapter 5 - Kinds Of Insurance, Limits Of Risk, Reinsurance
CHAPTER 5 - KINDS OF INSURANCE, LIMITS OF RISK, REINSURANCE
26-5-101. Definitions not mutually exclusive.
Itis intended that certain insurance coverages may come within the definitions oftwo (2) or more kinds of insurance in this chapter, and the inclusion of acoverage within one (1) definition does not preclude it from being includedwithin another definition in which it can be reasonably included.
26-5-102. "Life insurance" defined.
(a) Life insurance is insurance on human lives and thetransaction of life insurance includes also the granting of:
(i) Endowment benefits;
(ii) Additional benefits because of death or dismemberment byaccident or accidental means;
(iii) Additional benefits because of the insured's disability;and
(iv) Optional modes of settlement of proceeds of life insurance.
26-5-103. "Disability insurance" defined.
(a) Disability insurance is insurance of any kind on humanbeings against:
(i) Bodily injury, disablement or death by accident oraccidental means, or the expense thereof; or
(ii) Disablement or expense resulting from sickness.
26-5-104. "Property insurance" defined.
Propertyinsurance is insurance on any property against loss or damage from any cause,and against loss consequential upon that loss or damage, other thannoncontractual legal liability for that loss or damage. Property insurance doesnot include title insurance, as defined in W.S. 26-5-109.
26-5-105. "Surety insurance" defined.
(a) Surety insurance includes:
(i) Fidelity insurance, which is insurance guaranteeing thefidelity of persons holding positions of public or private trust;
(ii) Insurance guaranteeing the performance of contracts, otherthan insurance policies, and guaranteeing and executing bonds, undertakings andcontracts of suretyship;
(iii) Insurance indemnifying insureds against:
(A) Loss, resulting from any cause, on bills of exchange,bonds, securities, deeds, warehouse receipts or other valuable papers,documents, money, precious metals and articles made therefrom, jewelry,watches, gems, precious and semiprecious stones, including any loss thereofwhile being transported in armored motor vehicles, or by messenger, but notincluding any other risks of transportation or navigation; or
(B) Loss or damage to an insured's premises or to hisfurnishings, fixtures, equipment, safes and vaults therein, caused by actual orattempted burglary, robbery, theft, vandalism or malicious mischief.
26-5-106. "Casualty insurance" defined.
(a) Casualty insurance includes:
(i) Insurance against:
(A) Loss of or damage to any land vehicle or aircraft or anydraft or riding animal or to property while contained therein or thereon orbeing loaded or unloaded therein or therefrom, from any cause;
(B) Any loss, liability or expense resulting from or incidentalto ownership, maintenance or use of any vehicle, aircraft or animal; and
(C) Accidental injury to individuals, regardless of legalliability of the insured, including the named insured, while in, entering,alighting from, adjusting, repairing, cranking or caused by being struck by avehicle, aircraft or draft or riding animal, if the insurance is issued as anincidental part of insurance on the vehicle, aircraft or draft or ridinganimal.
(ii) Insurance against legal liability for the death, injury, ordisability of any human being or for damage to property, and provision ofmedical, hospital, surgical and disability benefits to injured persons andfuneral and death benefits to dependents, beneficiaries or personalrepresentatives of persons killed, regardless of legal liability of theinsured, if issued as an incidental coverage with or supplemental to liabilityinsurance;
(iii) Insurance of the obligations accepted by, imposed upon orassumed by employers under law for death, disablement or injury of employees;
(iv) Insurance against loss or damage:
(A) By actual or attempted burglary, theft, larceny, robbery,forgery, fraud, vandalism, malicious mischief, confiscation, wrongfulconversion, disposal or concealment, including supplemental coverage formedical, hospital, surgical and funeral expense incurred by the named insuredor any other person as a result of bodily injury during the commission of aburglary, robbery or theft by another;
(B) To monies, coins, bullion, securities, notes, drafts,acceptances or any other valuable papers and documents from any cause.
(v) Insurance upon personal effects against loss or damage fromany cause;
(vi) Insurance against loss or damage to glass, including itslettering, ornamentation and fittings;
(vii) Insurance against any liability and loss or damage toproperty or interest resulting from accidents to or explosions of boilers,pipes, pressure containers, machinery or apparatus, and the inspection of andissuance of certificates of inspection upon boilers, machinery and apparatus ofany kind, whether or not insured;
(viii) Insurance against loss or damage to:
(A) Any property or interest caused by the breakage or leakageof sprinklers, hoses, pumps and other fire extinguishing equipment orapparatus, water pipes or containers, or by water entering through leaks oropenings in buildings; and
(B) The sprinklers, hoses, pumps and other fire extinguishingequipment or apparatus.
(ix) Insurance indemnifying the insured against loss or damageresulting from failure of debtors to pay their obligations to the insured,including insurance to guarantee the repayment of real estate mortgages;
(x) Insurance against:
(A) Legal liability of the insured; and
(B) Loss, damage, or expense incidental to a claim of thatliability, including medical, hospital, surgical and funeral benefits toinjured persons, regardless of legal liability of the insured, because ofdeath, injury or disablement of any person or damage to the economic interestsof any person as the result of negligence in rendering expert, fiduciary orprofessional service.
(xi) Insurance against loss of or damage to any property of theinsured, resulting from the ownership, maintenance or use of elevators, exceptloss or damage by fire and including the inspection of and issuance ofcertificates of inspection upon elevators;
(xii) Insurance against congenital defects in human beings;
(xiii) Insurance against loss or damage to livestock and servicesof a veterinary for those animals;
(xiv) Insurance indemnifying the producer of any motion picture,television, radio, theatrical, sport, spectacle, entertainment or similarproduction, event or exhibition against loss from interruption, postponement orcancellation thereof because of death, accidental injury or sickness ofperformers, participants, directors or other principals;
(xv) Insurance against any other kind of loss, damage orliability properly a subject of insurance and not within any other kind ofinsurance as defined in this chapter, if the commissioner does not disapprovethe insurance as being contrary to law or public policy.
(b) Provision of medical, hospital, surgical and funeralbenefits, and of coverage against accidental death or injury, as incidental toand part of other insurance as stated under paragraphs (a)(i), (ii), (iv),(vii), (x) and (xi) of this section is for all purposes the same kind ofinsurance to which it is so incidental and is not subject to provisions of thiscode applicable to life or disability insurances.
26-5-107. "Marine and transportation insurance" and"wet marine and transportation insurance" defined.
(a) "Marine and transportation insurance" includes:
(i) Insurance against any kinds of loss or damage to:
(A) Vessels, craft, aircraft vehicles of any kind, all cargoes,effects, disbursements, profits, monies, bullion, precious stones, securities,choses in action, evidences of debt, valuable papers, bottomry and respondentiainterests and all other kinds of property and interests therein, incidentthereto or in connection with any risks of any type of navigation, transit ortransportation, or while being assembled or prepared in any manner for orawaiting shipment or during any delays, storage, transshipment or reshipmentincident thereto, including marine builder's risks and all personal property,floater risks; and
(B) Person or to property in connection with or appertaining toa marine, inland marine, transit or transportation insurance, includingliability for loss of or damage to either because of or in connection with theconstruction, repair, operation, maintenance or use of the subject matter ofthe insurance, excluding life insurance, surety bonds and insurance againstloss by reason of bodily injury to the person because of the ownership,maintenance or use of automobiles; and
(C) Any jewels or precious metals used in any manner andwhether in transportation or otherwise; and
(D) Bridges, tunnels and other instrumentalities oftransportation, excluding buildings, their furnishings and fixed contents andsupplies held in storage, unless fire, tornado, sprinkler leakage, hail,explosion, earthquake, riot or civil commotion or both, are the only hazards tobe covered, piers, wharves, docks and slips, excluding the risks of fire,tornado, sprinkler leakage, hail, explosion, earthquake, riot or civilcommotion or both, and other aids to navigation and transportation includingdry docks and marine railways, against all risks; and
(ii) "Marine protection and indemnity insurance",meaning insurance against the insured or against legal liability of the insuredfor, loss, damage or expense arising out of or incident to the ownership,operation, chartering, maintenance, use, repair or construction of any vesselor craft in use in ocean or inland waterways, including liability of theinsured for personal injury, illness or death or for the loss of or damage tothe property of another person.
(b) For the purposes of this code, "wet marine andtransportation" insurance is that part of "marine andtransportation" insurance which includes only:
(i) Insurance upon vessels, crafts, hulls and of intereststherein or with relation thereto;
(ii) Insurance of marine builders' risks, marine war risks andcontracts of marine protection and indemnity insurance;
(iii) Insurance of freights and disbursements pertaining to asubject of insurance coming within this definition; and
(iv) Insurance of personal property and interests therein incourse of exportation from or importation into any country, or in course oftransportation coastwise or on inland waters, including any form of transportationfrom point of origin to final destination in respect to or in connection withany risks of navigation, transit or transportation, and while being preparedfor or awaiting shipment, and during any delays, storage, transshipment orreshipment incident thereto.
26-5-108. What insurance multiple line insurer may transact.
Amultiple line insurer may transact any kind of insurance defined in thischapter, other than title insurance and, except as provided in W.S.26-3-107(a)(i), life insurance or the granting of annuities.
26-5-109. "Title insurance" defined.
Titleinsurance is insurance of owners of property or others having an interesttherein, or liens or encumbrances thereon, against loss by encumbrance,defective titles, invalidity or adverse claim to title.
26-5-110. Limit of risk.
(a) No insurer, other than a title insurer, shall retain anyrisk on any one (1) subject of insurance, regardless of where located or to beperformed, in an amount exceeding ten percent (10%) of its surplus topolicyholders.
(b) A "subject of insurance" for the purposes of thissection, as to insurance against fire and hazards other than windstorm,earthquake and other catastrophic hazards, includes all properties insured bythe same insurer which are customarily considered by underwriters to be subjectto loss or damage from the same fire or the same occurrence of any other hazardinsured against.
(c) Reinsurance ceded as authorized by W.S. 26-5-111 shall bededucted in determining risk retained. As to surety risks, the amount assumedby any established incorporated cosurety and the value of any securitydeposited, pledged or held subject to the surety's consent and for the surety'sprotection shall also be deducted.
(d) As to alien insurers, this section relates only to risksand surplus to policyholders of the insurer's United States branch.
(e) "Surplus to policyholders" for the purposes ofthis section, in addition to the insurer's capital and surplus, includes anyvoluntary reserves which are not required pursuant to law and shall bedetermined from the insurer's last sworn statement on file with thecommissioner, or by the last report of examination of the insurer, whichever isthe more recent at time of assumption of risk.
(f) This section does not apply to life or disabilityinsurance, annuities, insurance of wet marine and transportation risks,worker's compensation insurance, employers' liability coverages nor to anypolicy or type of coverage as to which the maximum possible loss to the insureris not readily ascertainable on issuance of the policy.
(g) Limits of risk as to newly formed domestic mutual insurersshall be as provided in W.S. 26-24-109.
26-5-111. Reinsurance.
(a) Repealed by Laws 1991, ch. 128, 2.
(b) Repealed by Laws 1991, ch. 128, 2.
(c) Repealed by Laws 1991, ch. 128, 2.
(d) Repealed by Laws 1991, ch. 128, 2.
(e) Repealed by Laws 1991, ch. 128, 2.
(f) An insurer may accept reinsurance only on the risks andwithin the limits authorized.
(g) Repealed by Laws 1992, ch. 59, 3.
(h) Repealed by Laws 1992, ch. 59, 3.
(j) Repealed by Laws 1992, ch. 59, 3.
(k) Repealed by Laws 1992, ch. 59, 3.
(m) Repealed by Laws 1992, ch. 59, 3.
(n) Repealed by Laws 1992, ch. 59, 3.
26-5-112. Credit allowed a domestic ceding insurer.
(a) Except as provided in W.S. 26-5-113, credit for reinsuranceshall be allowed a domestic ceding insurer as either an asset or a deductionfrom liability on account of reinsurance ceded only if:
(i) The reinsurance is ceded to an assuming insurer which islicensed to transact insurance in this state;
(ii) The reinsurance is ceded to an assuming insurer which isaccredited as a reinsurer in this state and whose accreditation has not beenrevoked by the commissioner. An accredited reinsurer is one which:
(A) Files with the commissioner evidence of its submission tothis state's jurisdiction;
(B) Submits to this state's authority to examine its books andrecords;
(C) Is licensed to transact insurance or reinsurance in atleast one (1) state, or in the case of a United States branch of an alienassuming insurer is entered through and licensed to transact insurance orreinsurance in at least one (1) state; and
(D) Files annually with the commissioner a copy of its annualstatement filed with the insurance department of its state of domicile and acopy of its most recent audited financial statement; and
(I) Maintains a surplus as regards policyholders in an amountwhich is not less than twenty million dollars ($20,000,000.00) and whoseaccreditation has not been denied by the commissioner within ninety (90) daysof its submission; or
(II) Maintains a surplus as regards policyholders in an amountless than twenty million dollars ($20,000,000.00) and whose accreditation hasbeen approved by the commissioner.
(iii) The reinsurance is ceded to an assuming insurer which isdomiciled and licensed in, or in the case of a United States branch of an alienassuming insurer is entered through and licensed in, a state which employsstandards regarding credit for reinsurance which meet or exceed thoseapplicable under this section and the assuming insurer or United States branchof an alien assuming insurer:
(A) Maintains a surplus as regards policyholders in an amountnot less than twenty million dollars ($20,000,000.00), provided however thatthis requirement does not apply to reinsurance ceded and assumed pursuant topooling arrangements among insurers in the same holding company system; and
(B) Submits to the authority of this state to examine its booksand records.
(iv) The reinsurance is ceded to an assuming insurer not meetingthe requirements of paragraphs (i) through (iii) or (v) of this subsection butonly with respect to the insurance of risks located in jurisdictions where suchreinsurance is required by applicable law or regulation of that jurisdiction;or
(v) The reinsurance is ceded to an assuming insurer whichmaintains a trust fund in a qualified United States financial institution, asdefined in W.S. 26-5-114(b), for the payment of the valid claims of its UnitedStates policyholders and ceding insurers, their assigns and successors ininterest. The assuming insurer shall report annually to the commissionerinformation substantially the same as that required to be reported on theNational Association of Insurance Commissioners annual statement form bylicensed insurers to enable the commissioner to determine the sufficiency ofthe trust fund. In the case of a single assuming insurer, the trust shallconsist of a trusteed account representing the assuming insurer's liabilitiesattributable to business written in the United States and, in addition, theassuming insurer shall maintain a trusteed surplus of not less than twenty milliondollars ($20,000,000.00). In the case of a group including incorporated andindividual unincorporated underwriters, the trust shall consist of a trusteedaccount representing the group's liabilities attributable to business writtenin the United States and, in addition:
(A) The group shall maintain a trusteed surplus of which onehundred million dollars ($100,000,000.00) shall be held jointly for the benefitof United States ceding insurers of any member of the group;
(B) The group shall make available to the commissioner anannual certification of the solvency of each underwriter by the group'sdomiciliary regulator and its independent public accountants; and
(C) The incorporated members of the group shall not be engagedin any business other than underwriting as a member of the group and shall besubject to the same level of solvency regulation and control by the group'sdomiciliary regulator as are the unincorporated members.
(b) A trust under paragraph (a)(v) of this section shall be establishedin a form approved by the commissioner. The trust instrument shall providethat contested claims shall be valid and enforceable upon the final order ofany court of competent jurisdiction in the United States. The trust shall vestlegal title to its assets in the trustees of the trust for its United Statespolicyholders and ceding insurers, their assigns and successors in interest. The trust and the assuming insurer shall be subject to examination asdetermined by the commissioner. The trust described herein shall remain ineffect for as long as the assuming insurer shall have outstanding obligationsdue under the reinsurance agreements subject to the trust. No later thanFebruary 28 of each year the trustees of the trust shall report to the commissionerin writing setting forth the balance of the trust and listing the trust'sinvestments at the preceding year end and shall certify the date of terminationof the trust, if so planned, or certify that the trust shall not expire priorto the next following December 31.
(c) If the assuming insurer is not licensed or accredited totransact insurance or reinsurance in this state, the credit permitted byparagraphs (a)(iii) and (v) of this section shall not be allowed unless theassuming insurer agrees in the reinsurance agreements:
(i) That in the event of the failure of the assuming insurer toperform its obligations under the terms of the reinsurance agreement, theassuming insurer, at the request of the ceding insurer, shall submit to thejurisdiction of any court of competent jurisdiction in any state of the UnitedStates, shall comply with all requirements necessary to give the courtjurisdiction, and shall abide by the final decision of the court or of anyappellate court in the event of an appeal; and
(ii) To designate the commissioner as its true and lawfulattorney upon whom may be served any lawful process in any action, suit orproceeding instituted by or on behalf of the ceding company.
(d) Subsection (c) of this section shall not supersede theobligation of the parties to a reinsurance agreement to arbitrate theirdisputes, if such an obligation is created in the agreement.
26-5-113. Reduction from liability for reinsurance ceded by a domesticinsurer to an assuming insurer.
(a) A reduction from liability for the reinsurance ceded by adomestic insurer to an assuming insurer not meeting the requirements of W.S.26-5-112 shall be allowed in an amount not exceeding the liabilities carried bythe ceding insurer and such reduction shall be in the amount of funds held byor on behalf of the ceding insurer, including funds held in trust for theceding insurer, under a reinsurance contract with the assuming insurer assecurity for the payment of obligations thereunder, if the security is held inthe United States subject to withdrawal solely by, and under the exclusivecontrol of, the ceding insurer, or, in the case of a trust, held in a qualifiedUnited States financial institution, as defined in W.S. 26-5-114(b). Thissecurity may be in the form of:
(i) Cash;
(ii) Securities listed by the securities valuation office of theNational Association of Insurance Commissioners and qualifying as admittedassets;
(iii) Clean, irrevocable, unconditional letters of credit issuedor confirmed by a qualified United States institution no later than December 31in respect of the year for which filing is being made, and in the possession ofthe ceding company on or before the filing date of its annual statement. Letters of credit meeting applicable standards of issuer acceptability as ofthe dates of their issuance or confirmation shall, notwithstanding the issuingor confirming institution's subsequent failure to meet applicable standards ofissuer acceptability, continue to be acceptable as security until theirexpiration, extension, renewal, modification or amendment, whichever firstoccurs; or
(iv) Any other form of security acceptable to the commissioner.
26-5-114. Qualified United States financial institutions.
(a) For purposes of W.S. 26-5-113(a)(iii), a "qualifiedUnited States financial institution" means an institution that:
(i) Is organized or, in the case of a United States office of aforeign banking organization licensed, under the laws of the United States orany state thereof;
(ii) Is regulated, supervised and examined by United Statesfederal or state authorities having regulatory authority over banks and trustcompanies; and
(iii) Has been determined by either the commissioner, or thesecurities valuation office of the National Association of InsuranceCommissioners, to meet such standards of financial condition and standing asare considered necessary and appropriate to regulate the quality of financialinstitutions whose letters of credit will be acceptable to the commissioner.
(b) A "qualified United States financial institution"means, for purposes of those provisions of W.S. 26-5-112 and 26-5-113specifying those institutions that are eligible to act as a fiduciary of atrust, an institution that:
(i) Is organized or, in the case of a United States branch oragency office of a foreign banking organization licensed, under the laws of theUnited States or any state thereof and has been granted authority to operatewith fiduciary powers; and
(ii) Is regulated, supervised and examined by federal or stateauthorities having regulatory authority over banks and trust companies.
26-5-115. Reinsurance payable without diminution due to insolvency ofceding insurer.
Nocredit or reduction of liability for reinsurance ceded under W.S. 26-5-112 or26-5-113 shall be allowed unless the agreement provides that the reinsurance ispayable by the assuming insurer on the basis of the liability of the cedinginsurer without diminution due to the insolvency of the ceding insurer.
26-5-116. Rules and regulations; reporting.
(a) The commissioner may adopt rules and regulationsimplementing the provisions of W.S. 26-5-111 through 26-5-117.
(b) Upon the commissioner's request, an insurer shall promptlyinform him in writing of the cancellation or any other material change of anyof its reinsurance treaties or arrangements.
26-5-117. Reinsurance agreements affected.
W.S.26-5-112 through 26-5-116 shall apply to all cessions after the effective dateof this act under reinsurance agreements which have had an inception,anniversary or renewal date not less than six (6) months after the effectivedate of this act.
26-5-118. Repealed by Laws 1994, ch. 76, 3.
26-5-119. Life and disability reinsurance agreements; limitations.
(a) This section shall apply to all domestic life and domesticdisability insurers and to all other licensed life and disability insurerswhich are not subject to a substantially similar law or regulation in theirdomiciliary state. This section shall also similarly apply to licensed propertyand casualty insurers with respect to their accident and health business. Thissection shall not apply to assumption reinsurance, yearly renewable termreinsurance or certain nonproportional reinsurance such as stop loss orcatastrophe reinsurance.
(b)(i) No insurer subject to this section shall, for reinsuranceceded, reduce any liability or establish any asset in any financial statementfiled with the department if, by the terms of the reinsurance agreement, insubstance or effect, any of the following conditions exist:
(A) Renewal expense allowances provided or to be provided tothe ceding insurer by the reinsurer in any accounting period, are notsufficient to cover anticipated allocable renewal expenses of the cedinginsurer on the portion of the business reinsured, unless a liability isestablished for the present value of the shortfall using assumptions equal tothe applicable statutory reserve basis on the business reinsured. Thoseexpenses include commissions, premium taxes and direct expenses including, butnot limited to, billing, valuation, claims and maintenance expected by thecompany at the time the business is reinsured;
(B) The ceding insurer can be deprived of surplus or assets atthe reinsurer's option or automatically upon the occurrence of some event, suchas the insolvency of the ceding insurer, except that termination of thereinsurance agreement by the reinsurer for nonpayment of reinsurance premiumsor other amounts due, such as modified coinsurance reserve adjustments,interest and adjustments on funds withheld, and tax reimbursements shall not beconsidered to be a deprivation of surplus or assets;
(C) The ceding insurer is required to reimburse the reinsurerfor negative experience under the reinsurance agreement. Offsetting experiencerefunds against current and prior years' losses under the agreement or paymentby the ceding insurer of an amount equal to the current and prior years' lossesunder the agreement upon voluntary termination of in-force reinsurance by theceding insurer shall not be considered a reimbursement to the reinsurer fornegative experience. Voluntary termination does not include situations wheretermination occurs because of unreasonable provisions which allow the reinsurerto reduce its risk under the agreement;
(D) The ceding insurer must, at specific points in timescheduled in the agreement, terminate or automatically recapture all or part ofthe reinsurance ceded;
(E) The reinsurance agreement involves the possible payment bythe ceding insurer to the reinsurer of amounts other than from income realizedfrom the reinsured policies;
(F) The treaty does not transfer all of the significant riskinherent in the business being reinsured. The following table identifies for arepresentative sampling of products or type of business, the risks which areconsidered to be significant. For products not specifically included, therisks determined to be significant shall be consistent with this table. Therisk categories are:
(I) Morbidity;
(II) Mortality;
(III) Lapse, meaning the risk that a policy will voluntarilyterminate prior to the recoupment of a statutory surplus strain experienced atissue of the policy;
(IV) Credit quality, meaning the risk that invested assetssupporting the reinsured business will decrease in value. The main hazards arethat assets will default or that there will be a decrease in earning power. Credit quality excludes market value declines due to changes in interest rate;
(V) Reinvestment, meaning the risk that interest rates willfall and funds reinvested coupon payments or monies received upon assetmaturity or call will therefore earn less than expected. If asset durationsare less than liability durations, the mismatch will increase;
(VI) Disintermediation, meaning the risk that interest ratesrise and policy loans and surrenders increase or maturing contracts do notrenew at anticipated rates of renewal.
TYPE OF INSURANCE RISKCATEGORY
I II III IV V VI
Health Insurance-other than long + 0 + 0 0 0
term care insurance or long term
disability insurance
Health Insurance-long term care + 0 + + + 0
insurance or long term disability
insurance
Immediate Annuities 0 + 0 + + 0
Single Premium Deferred Annuities 0 0 + + + +
Flexible Premium Deferred
Annuities 0 0 + + + +
Guaranteed Interest Contracts 0 0 0 + + +
Other Annuity Deposit Business 0 0 + + + +
Single Premium Whole Life 0 + + + + +
Traditional Non-Par Permanent 0 + + + + +
Traditional Non-Par Term 0 + + 0 0 0
Traditional Par Permanent 0 + + + + +
Traditional Par Term 0 + + 0 0 0
Adjustable Premium Permanent 0 + + + + +
Indeterminate Premium Permanent 0 + + + + +
Universal Life Flexible Premium 0 + + + + +
Universal Life Fixed Premium 0 + + + + +
Universal Life Fixed Premium
dump-in premiums allowed 0 + + + + +
+ - Significant
0 - Insignificant
(G)(I) The credit quality, reinvestment or disintermediation riskis significant for the business reinsured and the ceding company does not,other than for the classes of business excepted in subdivision (G)(II) of thisparagraph either transfer the underlying assets to the reinsurer, legallysegregate such assets in a trust or escrow account or otherwise establish amechanism which legally segregates, by contract or contract provision, theunderlying assets;
(II) Notwithstanding the requirements of subdivision (G)(I) ofthis paragraph, the assets supporting the reserves for the following classes ofbusiness and any classes of business which do not have a significant creditquality, reinvestment or disintermediation risk may be held by the cedingcompany without segregation of the assets:
(1) Health insurance - long term care or long term disability;
(2) Traditional nonparticipating permanent;
(3) Traditional participating permanent;
(4) Adjustable premium permanent;
(5) Indeterminate premium permanent;
(6) Universal life fixed premium, with no dump-in premiumsallowed.
(III) The associated formula for determining the reserve interestrate adjustment shall use a formula which reflects the ceding company'sinvestment earnings and incorporates all realized and unrealized gains andlosses reflected in the statutory statement. The following is an acceptableformula:
Rate = 2(I + CG)
X + Y - I - CG
Where: I is the net investment income
CG is capital gains less capital losses
X is the current year cash and invested
assets plus investment income due and
accrued less borrowed money
Y is the same as X but for the prior year
(H) Settlements are made less frequently than quarterly orpayments due from the reinsurer are not made in cash within ninety (90) days ofthe settlement date;
(J) The ceding insurer is required to make representations orwarranties not reasonably related to the business being reinsured;
(K) The ceding insurer is required to make representations orwarranties about future performance of the business being reinsured;
(M) The reinsurance agreement is entered into for the principalpurpose of producing significant surplus aid for the ceding insurer while nottransferring all of the significant risks inherent in the business reinsuredand, in substance or effect, the expected potential liability to the cedinginsurer remains basically unchanged.
(ii) Notwithstanding paragraph (i) of this subsection, aninsurer subject to this section may, with the prior approval of thecommissioner, take reserve credit or establish assets the commissioner deemsconsistent with this code, rules or regulations, including actuarialinterpretations or standards adopted by the department;
(iii)(A) Agreements entered into after April 1,1994 which involve the reinsurance of business issued prior to the effectivedate of the agreements, along with any subsequent amendments thereto, shall befiled by the ceding company with the commissioner within thirty (30) days fromtheir date of execution. Each filing shall include data detailing thefinancial impact of the transaction. The ceding insurer's actuary who signsthe financial statement actuarial opinion with respect to valuation of reservesshall consider this section and any applicable actuarial standards of practicewhen determining the proper credit in financial statements filed with thedepartment. The actuary shall maintain adequate documentation and be preparedupon request to describe the actuarial work performed for inclusion in thefinancial statements and to demonstrate that the work conforms to this section;
(B) Any increase in surplus net of federal income tax resultingfrom arrangements described in subparagraph (A) of this paragraph shall beidentified separately on the insurer's statutory financial statement as asurplus item with aggregate write-ins for gains and losses in surplus in thecapital and surplus account, and recognition of the surplus increase as incomeshall be reflected on a net of tax basis in the "reinsurance ceded" line,of the annual statement as earnings emerge from the business reinsured.
(c)(i) No reinsurance agreement or amendment to any agreementshall be used to reduce any liability or to establish any asset in anyfinancial statement filed with the department, unless the agreement, amendmentor a binding letter of intent has been duly executed by both parties no laterthan the "as of date" of the financial statement;
(ii) In the case of a letter of intent, a reinsurance agreementor an amendment to a reinsurance agreement must be executed within a reasonableperiod of time, not exceeding ninety (90) days from the execution date of theletter of intent, in order for credit to be granted for the reinsurance ceded;
(iii) The reinsurance agreement shall contain provisions whichprovide that:
(A) The agreement shall constitute the entire agreement betweenthe parties with respect to the business being reinsured thereunder and thatthere are no understandings between the parties other than as expressed in theagreement; and
(B) Any change or modification to the agreement shall be nulland void unless made by amendment to the agreement and signed by both parties.
(d) Insurers subject to this section shall reduce to zero (0)by December 31, 1995 any reserve credits or assets established with respect toreinsurance agreements entered into prior to April 1, 1994 which, under theprovisions of this section would not be entitled to recognition of the reservecredits or assets, provided, however, that the reinsurance agreements shallhave been in compliance with laws or regulations in existence immediatelypreceding the effective date of this section.
(e) The commissioner may promulgate reasonable rules andregulations and issue orders necessary to implement the provisions of thissection.