AN
ACT Relating to credit for reinsured ceded risks; amending RCW 48.12.160;
adding new sections to chapter 48.12 RCW; creating a new section; and repealing
RCW 48.05.300.
BE IT ENACTED BY THE
LEGISLATURE OF THE STATE OF WASHINGTON:
NEW
SECTION. Sec. 1. (1)
The purpose of this act is to protect the interest of insureds, claimants,
ceding insurers, assuming insurers, and the public generally.
(2)
It is the intent of the legislature to ensure adequate regulation of insurers
and reinsurers and adequate protection for those to whom they owe obligations.
(3)
It is also the intent of the legislature to declare that the matters contained
in this act are fundamental to the business of insurance and to exercise its
powers and privileges under 15 U.S.C. Secs. 1011 and 1012.
NEW
SECTION. Sec. 2. For
purposes of this act, a "qualified United States financial
institution" means an institution that complies with all of the following:
(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 United States federal or state
authorities having regulatory authority over banks and trust companies;
(3)
Has been determined by the commissioner, or, in the discretion of the
commissioner, the securities valuation office of the national association of
insurance commissioners, to meet such standards of financial condition and
standing as are considered necessary and appropriate to regulate the quality of
financial institutions whose letters of credit will be acceptable to the
commissioner; and
(4)
Is not affiliated with the assuming company.
NEW
SECTION. Sec. 3. Upon
insolvency of a non-United States insurer or reinsurer that provides security
to fund its United States obligations in accordance with this act, the assets
representing the security must be maintained in the United States and claims
must be filed with and valued by the state insurance commissioner with
regulatory oversight, and the assets distributed, in accordance with the
insurance laws of the state in which the trust is domiciled that are applicable
to the liquidation of domestic United States insurance companies.
NEW
SECTION. Sec. 4. (1)
Credit for reinsurance in a reinsurance contract entered into after December
31, 1996, is allowed a domestic ceding insurer as either an asset or a
deduction from liability in accordance with RCW 48.12.160 only if the
reinsurance contract contains provisions that provide, in substance, as
follows:
(a)
The reinsurer shall indemnify the ceding insurer against all or a portion of
the risk it assumed according to the terms and conditions contained in the
reinsurance contract.
(b)
In the event of insolvency and the appointment of a conservator, liquidator, or
statutory successor of the ceding company, the portion of risk or obligation
assumed by the reinsurer is payable to the conservator, liquidator, or
statutory successor on the basis of claims allowed against the insolvent
company by a court of competent jurisdiction or by a conservator, liquidator,
or statutory successor of the company having authority to allow such claims,
without diminution because of that insolvency, or because the conservator,
liquidator, or statutory successor failed to pay all or a portion of any
claims. Payments by the reinsurer as provided in this subsection are made
directly to the ceding insurer or to its conservator, liquidator, or statutory
successor, except where the contract of insurance, reinsurance, or other
written agreement specifically provides another payee of such reinsurance in
the event of the insolvency of the ceding insurer.
(2)
Payment under a reinsurance contract must be made within a reasonable time with
reasonable provision for verification in accordance with the terms of the
reinsurance agreement. However, in no event shall the payments be beyond the
period required by the national association of insurance commissioners accounting
practices and procedures manual.
(3)
The original insured or policyholder may not have any rights against the
reinsurer that are not specifically set forth in the contract of reinsurance,
or in a specific agreement between the reinsurer and the original insured or
policyholder.
NEW
SECTION. Sec. 5.
Credit for reinsurance, as either an asset or a deduction, is prohibited in an
accounting or financial statement of the ceding insurer in respect to the
reinsurance contract unless, in such contract, the reinsurer undertakes to
indemnify the ceding insurer against all or a part of the loss or liability
arising out of the original insurance. This section only applies to those
reinsurance contracts entered into after December 31, 1996.
Sec.
6. RCW
48.12.160 and 1996 c 297 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, unless the assuming insurer is the subject of a
regulatory order or regulatory oversight by a state in which it is licensed
based upon a commissioner's determination that the assuming insurer is in a
hazardous financial condition. 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,)) qualified United States financial institution which
trust fund must be in an amount equal to ((the group's liabilities
attributable to business written in the United States, and)):
(i)
For reinsurance ceded under reinsurance agreements with an inception,
amendment, or renewal date on or after August 1, 1995, funds in trust in an
amount not less than the group's several liabilities attributable to business
ceded by United States domiciled insurers to any member of the group; or
(ii)
For reinsurance ceded under reinsurance agreements with an inception date on or
before July 31, 1995, and not amended or renewed after that date,
notwithstanding the other provisions of this act, funds in trust in an amount
not less than the group's several insurance and reinsurance liabilities
attributable to business written in the United States.
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;
(b)
Where the reinsurer does not meet the definition of (a) of this subsection, the
single assuming alien reinsurer that, as of the date of the ceding
insurer's statutory financial statement, 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)) qualified United States financial
institution, which trust fund must be in an amount ((equal to)) not
less than the assuming alien 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 , and the assuming alien reinsurer maintaining the trust
fund must have received a registration from the commissioner under section 7 of
this act. The assuming alien reinsurer shall report on or before February 28th
to the commissioner substantially the same information as that required to be
reported on the national association of insurance commissioners annual statement
form by licensed insurers, to enable the commissioner to determine the
sufficiency of the trust fund; ((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 (c)(i) of this
subsection.
(2)
Credit for reinsurance may not be granted under subsection (1)(a), (b), and
(c)(i) of this section unless:
(a)
The form of the trust and amendments to the trust have been approved by the
insurance commissioner of the state where the trust is located, or the
insurance commissioner of another state who, pursuant to the terms of the trust
agreement, has accepted principal regulatory oversight of the trust;
(b)
The trust and trust amendments are filed with the commissioner of every state
in which the ceding insurer beneficiaries of the trust are domiciled;
(c)
The trust instrument provides that contested claims are valid, enforceable, and
payable out of funds in trust to the extent remaining unsatisfied thirty days
after entry of the final order of a court of competent jurisdiction in the
United States;
(d)
The trust vests legal title to its assets in the trustees of the trust for the
benefit of the grantor's United States ceding insurers, their assigns, and
successors in interest;
(e)
The trust and the assuming insurer are subject to examination as determined by
the commissioner;
(f)
The trust shall remain in effect for as long as the assuming insurer, member,
or former member of a group of insurers has outstanding obligations due under
the reinsurance agreements subject to the trust; and
(g)
No later then February 28th of each year, the trustees of the trust report to
the commissioner in writing setting forth the balance of the trust and listing
the trust's investments at the preceding year end. In addition, the trustees
of the trust shall certify the date of termination of the trust, if so planned,
or certify that the trust shall not expire within the next twelve months.
(3)
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)) (4) The domiciliary
conservator, liquidator ((or)), receiver, or statutory
successor of an insolvent ceding insurer shall give written notice to the
assuming insurer 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)))
(5) 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.
(6)
The credit permitted by subsection (1)(b) of this section is prohibited unless
the assuming alien insurer agrees in the trust agreement, notwithstanding other
provisions in the trust instrument, if the trust fund is inadequate because it
contains an amount less than the amount required by subsection (1)(b) of this
section or if the grantor of the trust has been declared insolvent or placed
into receivership, rehabilitation, liquidation, or similar proceedings under
the laws of its state or country of domicile:
(a)
To comply with an order of the commissioner with regulatory oversight over the
trust or with an order of a court of competent jurisdiction directing the
trustee to transfer to the commissioner with regulatory oversight all of the
assets of the trust fund;
(b)
That assets be distributed by, and insurance claims of United States trust
beneficiaries be filed with and valued by, the commissioner with regulatory
oversight in accordance with the laws of the state in which the trust is
domiciled that are applicable to the liquidation of domestic insurance
companies;
(c)
That if the commissioner with regulatory oversight determines that the assets
of the trust fund or a part thereof are not necessary to satisfy the claims of
the United States ceding insurers, which are United States trust beneficiaries,
the assets or part thereof shall be returned by the commissioner with
regulatory oversight to the trustee for distribution in accordance with the
trust agreement; and
(d)
That the grantor waives any right otherwise available to it under United States
law that is inconsistent with this provision.
NEW
SECTION. Sec. 7. (1)
The assuming alien reinsurer must register with the commissioner and must:
(a)
File with the commissioner evidence of its submission to this state's
jurisdiction and to this state's authority to examine its books and records
under chapter 48.03 RCW;
(b)
Designate the commissioner as its lawful attorney upon whom service of all
papers may be made for an action, suit, or proceeding instituted by or on
behalf of the ceding insurer;
(c)
File with the commissioner a certified copy of a letter or a certificate of
authority or a certificate of compliance issued by the assuming alien insurer's
domiciliary jurisdiction and the domiciliary jurisdiction of its United States
reinsurance trust;
(d)
Submit a statement, signed and verified by an officer of the assuming alien
insurer to be true and correct, that discloses whether the assuming alien
insurer or an affiliated person who owns or has a controlling interest in the
assuming alien insurer is currently known to be the subject of one or more of
the following:
(i)
An order or proceeding regarding conservation, liquidation, or receivership;
(ii)
An order or proceeding regarding the revocation or suspension of a license or
accreditation to transact insurance or reinsurance in any jurisdiction; or
(iii)
An order or proceeding brought by an insurance regulator in any jurisdiction
seeking to restrict or stop the assuming alien insurer from transacting
insurance or reinsurance based upon a hazardous financial condition.
The
assuming alien insurer shall provide the commissioner with copies of all orders
or other documents initiating proceedings subject to disclosure under this
subsection. The statement must affirm that no actions, proceedings, or orders
subject to this subsection are outstanding against the assuming alien insurer
or an affiliated person who owns or has a controlling interest in the assuming
alien insurer, except as disclosed in the statement;
(e)
File other information, financial or otherwise, which the commissioner
reasonably requests.
(2)
A registration continues in force until suspended, revoked, or not renewed. A
registration is subject to renewal annually on the first day of July upon
application of the assuming alien insurer and payment of the fee in the same
amount as an insurer pays for renewal of a certificate of authority.
(3)
The commissioner shall give an assuming alien insurer notice of his or her
intention to revoke or refuse to renew its registration at least ten days
before the order of revocation or refusal is to become effective.
(4)
The commissioner shall, consistent with chapters 48.04 and 34.05 RCW, deny or
revoke an assuming alien insurer's registration if the assuming alien insurer
no longer qualifies or meets the requirements for registration.
(5)
The commissioner may, consistent with chapters 48.04 and 34.05 RCW, deny or
revoke an assuming alien insurer's registration if the assuming alien insurer:
(a)
Fails to comply with a provision of this chapter or fails to comply with an
order or regulation of the commissioner;
(b)
Is found by the commissioner to be in such a condition that its further
transaction of reinsurance would be hazardous to ceding insurers,
policyholders, or the people in this state;
(c)
Refuses to remove or discharge a trustee, director, or officer who has been
convicted of a crime involving fraud, dishonesty, or moral turpitude;
(d)
Usually compels policy‑holding claimants either to accept less than the
amount due them or to bring suit against the assuming alien insurer to secure
full payment of the amount due;
(e)
Refuses to be examined, or its trustees, directors, officers, employees, or
representatives refuse to submit to examination or to produce its accounts,
records, and files for examination by the commissioner when required, or refuse
to perform a legal obligation relative to the examination;
(f)
Refuses to submit to the jurisdiction of the United States courts;
(g)
Fails to pay a final judgment rendered against it:
(i)
Within thirty days after the judgment became final;
(ii)
Within thirty days after time for taking an appeal has expired; or
(iii)
Within thirty days after dismissal of an appeal before final determination;
whichever
date is later.
(h)
Is found by the commissioner, after investigation or upon receipt of reliable
information:
(i)
To be managed by persons, whether by its trustees, directors, officers, or by
other means, who are incompetent or untrustworthy or so lacking in insurance
company management experience as to make proposed operation hazardous to the
insurance-buying public; or
(ii)
That there is good reason to believe it is affiliated directly or indirectly
through ownership, control, or business relations, with a person or persons
whose business operations are, or have been found to be, in violation of any
law or rule, to the detriment of policyholders, stockholders, investors,
creditors, or of the public, by bad faith or by manipulation of the assets,
accounts, or reinsurance;
(i)
Does business through reinsurance intermediaries or other representatives in
this state or in any other state, who are not properly licensed under
applicable laws and rules; or
(j)
Fails to pay, by the date due, any amounts required by this code.
(6)
A domestic ceding insurer is not allowed credit with respect to reinsurance
ceded, if the assuming alien insurer's registration has been revoked by the
commissioner.
(7)
The actual costs and expenses incurred by the commissioner for an examination
of a registered alien insurer must be charged to and collected from the alien
reinsurer.
(8)
A registered alien reinsurer is included as a "class one"
organization for the purposes of RCW 48.02.190.
NEW
SECTION. Sec. 8. (1)
Unless credit for reinsurance or deduction from liability is prohibited under
section 5 of this act, a foreign ceding insurer is allowed credit for
reinsurance or deduction from liability to the extent credit has been allowed
by the ceding insurer's state of domicile if:
(a)
The state of domicile is accredited by the national association of insurance
commissioners; or
(b)
Credit or deduction from liability would be allowed under this act if the
foreign ceding insurer were domiciled in this state.
(2)
Notwithstanding subsection (1) of this section, credit for reinsurance or
deduction from liability may be disallowed upon a finding by the commissioner
that either the condition of the reinsurer, or the collateral or other security
provided by the reinsurer, does not satisfy the credit for reinsurance
requirements applicable to ceding insurers domiciled in this state.
NEW
SECTION. Sec. 9. The
commissioner may adopt rules to implement and administer this act.
NEW
SECTION. Sec. 10. RCW
48.05.300 and 1993 c 91 s 1, 1977 ex.s. c 180 s 1, & 1947 c
79 s .05.30 are each repealed.
NEW SECTION. Sec. 11.
Sections 2 through 5 and 7 through 9 of this act are each added to chapter
48.12 RCW.
