AN ACT Relating to
reinsurance and surplus lines of insurance involving incorporated entities;
amending RCW 48.12.160 and 48.15.090; and declaring an emergency.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF
WASHINGTON:
Sec. 1. RCW 48.12.160 and 1993 c
91 s 2 are each amended to read as follows:
(1) Any insurance
company organized under the laws of this state may take credit as an asset or
as a deduction from loss or claim, unearned premium, or life policy or contract
reserves on risks ceded to a reinsurer to the extent reinsured by an insurer or
insurers holding a certificate of authority to transact that kind of business
in this state. The credit on ceded risks reinsured by any insurer which is not
authorized to transact business in this state may be taken:
(a) Where the reinsurer
is a group ((of)) including incorporated and unincorporated
underwriters, and the group maintains a trust fund in a United States bank that
is determined by the national association of insurance commissioners to meet
credit standards for issuing letters of credit in connection with reinsurance,
which trust fund must be in an amount equal to 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
shall be held jointly and exclusively for the benefit of United States ceding
insurers of any member of the group; the incorporated members of the group
shall not be engaged in any business other than underwriting 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 regulator and its
independent public accountants; or
(b) In an amount not
exceeding:
(i) The amount of
deposits by and funds withheld from the assuming insurer pursuant to express
provision therefor in the reinsurance contract, as security for the payment of
the obligations thereunder, if the deposits or funds are assets of the types
and amounts that are authorized under chapter 48.13 RCW and are held subject to
withdrawal by and under the control of the ceding insurer or if the deposits or
funds are placed in trust for these purposes in a bank which is a member of the
federal reserve system and withdrawals from the trust cannot be made without
the consent of the ceding company; or
(ii) The amount of a
clean, irrevocable, and unconditional letter of credit issued by a United
States bank that is determined by the national association of insurance
commissioners to meet credit standards for issuing letters of credit in
connection with reinsurance, and issued for a term of at least one year with
provisions that it must be renewed unless the bank gives notice of nonrenewal
at least thirty days before the expiration issued under arrangements
satisfactory to the commissioner of insurance as constituting security to the
ceding insurer substantially equal to that of a deposit under (b)(i) of this
subsection.
(2) Any reinsurance
ceded by a company organized under the laws of this state or ceded by any
company not organized under the laws of this state and transacting business in
this state must be payable by the assuming insurer on the basis of liability of
the ceding company under the contract or contracts reinsured without diminution
because of the insolvency of the ceding company, and any such reinsurance
agreement which may be canceled on less than ninety days notice must provide
for a run-off of the reinsurance in force at the date of cancellation.
(3) A reinsurance
agreement may provide that the liquidator or receiver or statutory successor of
an insolvent ceding insurer shall give written notice of the pendency of a
claim against the insolvent ceding insurer on the policy or bond reinsured
within a reasonable time after such claim is filed in the insolvency proceeding
and that 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 defense or defenses which it may deem available
to the ceding insurer or its liquidator or receiver or statutory successor.
The expense thus
incurred by the assuming insurer shall be chargeable subject to court approval
against the insolvent ceding insurer as a part of the expense of liquidation 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.
(4) Where two or more
assuming insurers are involved in the same claim and a majority in interest
elect to interpose 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.
Sec. 2. RCW 48.15.090 and 1991
sp.s. c 5 s 2 are each amended to read as follows:
(1) A surplus line
broker shall not knowingly place surplus line insurance with insurers unsound
financially. The surplus line broker shall ascertain the financial condition
of the unauthorized insurer, and maintain written evidence thereof, before
placing insurance therewith. The surplus line broker shall not so insure with:
(a) Any foreign insurer
having less than six million dollars of capital and surplus or substantially
equivalent capital funds, of which not less than one million five hundred
thousand dollars is capital; or
(b) Any alien insurer
having less than six million dollars of capital and surplus or substantially
equivalent capital funds. By January 1, 1992, this requirement shall be
increased to twelve million five hundred thousand dollars. By January 1, 1993,
this requirement shall be further increased to fifteen million dollars. Such
alien insurers must have in force in the United States an irrevocable trust
account, in a qualified United States financial institution, on behalf of
United States policyholders of not less than two million five hundred thousand
dollars and consisting of cash, securities, letters of credit, or of
investments of substantially the same character and quality as those which are
eligible investments for the capital and statutory reserves of admitted
insurers authorized to write like kinds of insurance in this state. There must
be on file with the commissioner a copy of the trust, certified by the trustee,
evidencing a subsisting trust deposit having an expiration date which at no
time shall be less than five years after the date of creation of the trust.
Such trust fund shall be included in the calculation of the insurer's capital
and surplus or its equivalents; or
(c) Any ((unincorporated))
group ((of)) including incorporated and individual insurers
maintaining a trust fund of less than fifty million dollars as security to the
full amount thereof for all policyholders in the United States of each member
of the group, and such trust shall likewise comply with the terms and
conditions established in (b) of this subsection for an alien insurer; or
(d) Any insurance
exchange created by the laws of an individual state, maintaining capital and
surplus, or substantially equivalent capital funds of less than fifty million
dollars in the aggregate. For insurance exchanges which maintain funds for the
protection of all insurance exchange policyholders, each individual syndicate
shall maintain minimum capital and surplus, or the substantial equivalent
thereof, of not less than six million dollars. In the event the insurance
exchange does not maintain funds for the protection of all insurance exchange
policyholders, each individual syndicate shall meet the minimum capital and
surplus requirements of (a) of this subsection.
(2) The commissioner
may, by rule:
(a) Increase the
financial requirements under subsection (1) of this section by not more than
one million dollars in any twelve-month period, but in no case may the
requirements exceed fifteen million dollars; or
(b) Prescribe the terms
under which the foregoing financial requirements may be waived in circumstances
where insurance cannot be otherwise procured on risks located in this state.
(3) For any violation
of this section the surplus line broker may be fined not less than one hundred
dollars or more than five thousand dollars, and in addition to or in lieu
thereof the surplus line broker's license may be revoked, suspended, or
nonrenewed.
NEW
SECTION. Sec. 3. This act is necessary for
the immediate preservation of the public peace, health, or safety, or support
of the state government and its existing public institutions, and shall take
effect immediately.
