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HOUSE BILL 2490
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AS RECOMMENDED BY THE CONFERENCE COMMITTEE
Passed Legislature - 1996 Regular Session
State of Washington 54th Legislature 1996
Regular Session
By
Read first time 01/11/96. Referred to Committee
on Financial Institutions & Insurance.
Providing for credit for reinsurance
of trust fund maintained that meets national association of insurance
commissioners standards.
AN ACT Relating to
credit for reinsured ceded risks; amending RCW 48.12.160; creating new
sections; making an appropriation; providing an effective date; and declaring
an emergency.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF
WASHINGTON:
Sec. 1. RCW 48.12.160 and 1994 c
86 s 1 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 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) Where the
reinsurer does not meet the definition of (a) of this subsection, the reinsurer
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 reinsurer's liabilities attributable to
reinsurance ceded by United States domiciled insurers, and in addition, the
assuming insurer shall maintain a trusteed surplus of not less than twenty
million dollars; or
(c) 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))) (c)
(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.
NEW SECTION. Sec.
2. The insurance
commissioner shall adopt rules to implement and administer the amendatory
changes made by section 1 of this act.
NEW SECTION. Sec.
3. (1) The insurance
commissioner shall conduct a study to determine what rules or requirements are
necessary to ensure the safety, soundness, and regulatory oversight of the
practice set forth in section 1(1)(b) of this act.
(2) There is
appropriated from the insurance commissioner's regulatory account, over and
above the appropriation for the insurance commissioner for the fiscal year
ending June 30, 1997, the sum of ten thousand dollars, or as much thereof as
may be necessary, for the insurance commissioner to conduct the study in
subsection (1) of this section.
NEW SECTION. Sec.
4. (1) Sections 2 and 3 of
this act are 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.
(2)
Section 1 of this act shall take effect January 1, 1997.
