Arizona-2021-SB1044-Chaptered

Be it enacted by the Legislature of the State of Arizona:

Section 1. Repeal

Sections 20-261.01, 20-261.02, 20-261.03, 20-261.04, 20-261.05, 20-261.06, 20-261.07 and 20-261.08, Arizona Revised Statutes, are repealed.

Sec. 2. Section 20-821, Arizona Revised Statutes, is amended to read:

START_STATUTE20-821. Scope of article; rules; authority of director

A. Hospital service corporations, medical service corporations, dental service corporations, optometric service corporations and hospital, medical, dental and optometric service corporations incorporated in this state are governed by this article and are exempt from all other provisions of this title, except as expressly provided by this article and any rule adopted by the director pursuant to section 20-143 relating to contracts of such service corporations. No insurance law enacted after January 1, 1955 applies to such corporations unless the law specifically refers to corporations.

B. Chapter 2, article 12 of this title, sections 20-223, 20-234, 20-261, 20-261.01, 20-261.02, 20-261.03, 20-261.04, 20-1133, 20-1377, 20-1408, 20-1692, 20-1692.01, 20-1692.02 and 20-1692.03 and chapters 15, 17, and 20 and 30 of this title and any rules adopted to implement these provisions apply to all corporations governed by this article.

C. Chapter 21 of this title applies to a hospital service corporation, a medical service corporation or a hospital and medical service corporation. END_STATUTE

Sec. 3. Section 20-1068, Arizona Revised Statutes, is amended to read:

START_STATUTE20-1068. Statutory construction and relationship to other laws

A. Except as they relate to an insurer or a hospital or medical service corporation, the provisions of this title are applicable to health care services organizations only as provided in this article, chapter 1 of this title, chapter 2, article 12 of this title, chapter 3, articles 1, 2 and 7 of this title, sections 20-223, 20-233, 20-234, 20-261, 20-261.01, 20-261.02, 20-261.03, 20-261.04, 20-1133, 20-1135, 20-1379 and 20-1380, section 20-1408, subsections C through K, chapter 6, article 16 of this title and chapters 11, 15, 17, 20, and 21 and 30 of this title.

B. Unless preempted under federal law or unless federal law imposes greater requirements than this section, this section applies to a provider sponsored health care services organization. END_STATUTE

Sec. 4. Section 20-1085, Arizona Revised Statutes, is amended to read:

START_STATUTE20-1085. Capital

A. To qualify for initial authority to transact business a domestic life and disability reinsurer shall possess and thereafter maintain minimum required capital stock in the amount of one hundred thousand dollars $100,000.

B. To qualify for initial authority to transact business, an unaffiliated credit life and disability reinsurer shall possess and thereafter maintain unimpaired capital stock in the amount of seventy-five thousand dollars $75,000. An unaffiliated credit life and disability reinsurer may comply with this subsection with a clean, irrevocable and unconditional letter of credit that contains an evergreen clause and that is payable to the director in trust for the protection of all ceding insurers, affected policyholders and related expenses and that is issued or confirmed by a qualified United States financial institution as defined in section 20-261.03 20-3601, subsection A. For the purposes of this subsection, an evergreen clause provides for automatic renewal. END_STATUTE

Sec. 5. Section 20-1094.01, Arizona Revised Statutes, is amended to read:

START_STATUTE20-1094.01. Reserve requirements

A. An unaffiliated credit life and disability reinsurer shall secure liabilities that are assumed under a reinsurance agreement subject to approval pursuant to this article in any of the following:

1. With funds withheld.

2. With funds that are maintained in a trust fund that complies with section 20-261.02 20-3603 and in an amount that is not less than one hundred ten per cent percent of the amount of the liabilities assumed.

3. With clean, irrevocable and unconditional letters of credit that comply with section 20-261.02 20-3603, subsection B.

B. For the purposes of this section, the director shall value securities in the manner prescribed in sections 20-511 and 20-512. END_STATUTE

Sec. 6. Section 20-1098.03, Arizona Revised Statutes, is amended to read:

START_STATUTE20-1098.03. Minimum capital and surplus; letter of credit; borrowed surplus

A. The director shall not issue a license to a captive insurer unless the insurer possesses and thereafter maintains minimum unimpaired paid-in capital and surplus in combination as follows:

1. In the case of a pure captive insurer, at least two hundred fifty thousand dollars $250,000.

2. In the case of a group captive insurer, at least five hundred thousand dollars $500,000.

3. In the case of an agency captive insurer, at least five hundred thousand dollars $500,000.

4. In the case of a protected cell captive insurer, at least five hundred thousand dollars $500,000.

5. In the case of a captive insurer that is organized as a reciprocal insurer, at least five hundred thousand dollars $500,000.

6. In the case of a pure or group captive insurer that transacts only reinsurance, one-half of the applicable amount prescribed in paragraph 1 or 2 of this subsection.

B. All minimum capital and surplus requirements shall be in the form of cash or an irrevocable and unconditional letter of credit that contains an evergreen clause, that is payable to, filed with and held by the director in trust for the protection of all policyholders, ceding insurers and related expenses and that meets the following conditions:

1. The letter of credit shall be issued or confirmed by a qualified United States financial institution as defined in section 20-261.03 20-3601, subsection A and shall comply with the requirements prescribed by the director.

2. The captive insurer shall not be directly or contingently liable for any letter of credit comprising its capital or surplus, and its assets shall not be pledged as security for the letter of credit.

C. The director may prescribe additional capital and surplus requirements based on the type, volume and nature of insurance. The captive insurer may pledge, with the approval of the department, any additional prescribed capital and surplus, whether in the form of cash, another allowable asset or any irrevocable and unconditional letter of credit that contains an evergreen clause.

D. Notwithstanding any other provision of this title, a written agreement under which a captive insurer borrows monies that are required to be repaid only out of the insurer’s surplus in excess of that stipulated in the agreement may provide for interest at any rate agreed on and approved by the director.

E. A captive insurer that is established solely for the purpose of reinsuring risks as part of a program filed and approved by the director to facilitate the securitization of risks ceded to the captive insurer may be a party to contracts that provide that subsequent purchasers of interests in the program assume the interests on a nonrecourse basis, both as to the captive insurer and any affiliate. END_STATUTE

Sec. 7. Section 20-1098.11, Arizona Revised Statutes, is amended to read:

START_STATUTE20-1098.11. Reinsurance

A. Except as provided in subsection C of this section or otherwise with the approval of the director, a captive insurer may reinsure risks only pursuant to the limitations prescribed in section 20-1098.01, subsection A.

B. A captive insurer may take credit for reserves on risks or portions of risks ceded to a reinsurer that is in compliance with sections section 20-261 and 20-261.01 through 20-261.04 chapter 30 of this title. Prior approval of the director shall be required for ceding or taking credit for the reserves on risks or portions of risks ceded to a reinsurer if the reinsurer is not in compliance with sections section 20-261 and 20-261.01 through 20-261.04 chapter 30 of this title.

C. A captive insurer may cede to and assume risks that are not within the limitations prescribed in section 20-1098.01, subsection A, subject to the approval of the director. END_STATUTE

Sec. 8. Section 20-1557, Arizona Revised Statutes, is amended to read:

START_STATUTE20-1557. Reinsurance

A. If a mortgage guaranty insurance company obtains reinsurance from an insurance company which that is properly licensed to provide such reinsurance or from an appropriate governmental agency, the mortgage guaranty insurer and the reinsurer shall establish and maintain the reserves required in this article in appropriate proportions in relation to the risk retained by the original insurer and ceded to the assuming reinsurer so that the total reserves established shall not be less than the reserves required by this article.

B. Section 20-261, subsection D does not apply to a mortgage guaranty insurer.

C. Notwithstanding section 20-261, subsection A, a domestic mortgage guaranty insurer may reinsure its risks with a solvent insurer that has surplus to policyholders less than the minimum capital stock prescribed in section 20-1542 if the reinsurance agreement is approved by the director or the agreement both:

1. Cedes to a reinsurer that insures or reinsures only mortgage guaranty insurance.

2. Requires that reserves ceded to the reinsurer are secured in the manner prescribed in section 20-261.02 20-3603.

D. A mortgage guaranty insurer shall file a report with the director that includes all information regarding its reinsurance agreements as required by the director. The mortgage guaranty insurer shall file the report prescribed in this subsection with its annual and quarterly financial statements.

E. Except as provided in subsection B of this section, this section does not alter or diminish a domestic mortgage guaranty insurer's obligation to report to the director, file documents with the director or obtain the director's approval as prescribed in this title.

F. Notwithstanding title 39, chapter 1, the information submitted pursuant to subsection D of this section is confidential and proprietary and the director shall not make the information available for public inspection without the written consent of the domestic mortgage guaranty insurer, except that:

1. This subsection does not prevent the department's use of the information for any regulatory purpose, disciplinary action or hearing.

2. The director shall release the information if the information is required by a subpoena issued in connection with an administrative, civil or criminal investigation by a government agency.

3. In a civil action or contested case in which the domestic mortgage guaranty insurer that submitted the information is a party, any other party to the action or case may obtain the information if the party seeking to discover the information shows all of the following:

(a) The information sought is relevant to and necessary for the furtherance of the action or case.

(b) The information sought is not available from any other nonconfidential source.

(c) A subpoena issued by a judicial or administrative officer of competent jurisdiction has been submitted to the director.

4. The director may disclose the information to a public official who has jurisdiction over the regulation of insurance in another state if the public official agrees in writing to maintain the confidentiality of the information and the laws of the state in which the public official serves allow or require the information to be and remain confidential. END_STATUTE

Sec. 9. Title 20, Arizona Revised Statutes, is amended by adding chapter 30, to read:

CHAPTER 30

CREDIT FOR REINSURANCE

ARTICLE 1. GENERAL PROVISIONS

START_STATUTE20-3601. Definitions of qualified United States financial institution

A. For the purposes of section 20-3603, subsection B, paragraph 3, "qualified United States financial institution" means an institution that both:

1. Is:

(a) Organized or, in the case of a United States office of a foreign banking organization, is licensed under the laws of the United States or any state of the United States.

(b) Regulated, supervised and examined by United States federal or state authorities having regulatory authority over banks and trust companies.

2. Has been determined by either the director or 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 director.

B. For the purposes of the provisions of this article that specify the institutions that are eligible to act as a fiduciary of a trust, "qualified United States financial institution" means an institution that is both:

1. Organized or, in the case of a United States branch or agency office of a foreign banking organization, is licensed under the laws of the United States or any state of the United States and that has been granted authority to operate with fiduciary powers.

2. Regulated, supervised and examined by federal or state authorities having regulatory authority over banks and trust companies. END_STATUTE

START_STATUTE20-3602. Credit allowed a domestic ceding insurer; definition

A. A domestic ceding insurer shall be allowed a credit for reinsurance as either an asset or a reduction from liability on account of reinsurance ceded only when the reinsurer meets the requirements of subsection C, D, E, F, G, H or M of this section. The director may adopt rules pursuant to section 20-3604 that specify additional requirements relating to or setting forth any of the following:

1. The valuation of assets or reserve credits.

2. The amount and forms of security supporting reinsurance arrangements described in section 20-3603, subsection B.

3. The circumstances pursuant to which credit will be reduced or eliminated.

B. Credit shall be allowed under subsection C, D or E of this section only for cessions of those kinds or classes of business that the assuming insurer is licensed or otherwise allowed to write or assume in its state of domicile or, in the case of a United States branch of an alien assuming insurer, in the state through which it is entered and licensed to transact insurance or reinsurance. Credit shall be allowed under subsection E or F of this section only if the applicable requirements of Subsection N have been satisfied.

C. Credit shall be allowed when the reinsurance is ceded to an assuming insurer that is licensed to transact insurance or reinsurance in this state.

D. Credit shall be allowed when the reinsurance is ceded to an assuming insurer that is accredited by the director as a reinsurer in this state. To be eligible for accreditation, a reinsurer shall do all of the following:

1. File with the director evidence of its submission to this state's jurisdiction.

2. Submit to this state's authority to examine its books and records.

3. Be licensed to transact insurance or reinsurance in at least one state or, in the case of a United States branch of an alien assuming insurer, be entered through and licensed to transact insurance or reinsurance in at least one state.

4. File annually with the director a copy of its annual statement filed with the insurance department of its state of domicile and a copy of its most recent audited financial statement.

5. Demonstrate to the satisfaction of the director that it has adequate financial capacity to meet its reinsurance obligations and is otherwise qualified to assume reinsurance from domestic insurers. An assuming insurer is deemed to meet this requirement as of the time of its application if it maintains a surplus as regards policyholders of at least $20,000,000 and its accreditation has not been denied by the director within ninety days after submission of its application.

E. Credit shall be allowed when the reinsurance is ceded to an assuming insurer that is domiciled in or, in the case of a United States branch of an alien assuming insurer, is entered through a state that employs standards regarding credit for reinsurance substantially similar to those applicable under this article and the assuming insurer or United States branch of an alien assuming insurer does both of the following:

1. Maintains a surplus as regards policyholders of at least $20,000,000. This requirement does not apply to reinsurance ceded and assumed pursuant to pooling arrangements among insurers in the same holding company system.

2. Submits to the authority of this state to examine its books and records.

F. The following apply when credit is allowed when the reinsurance is ceded to an assuming insurer that maintains a trust fund for the payment of claims:

1. Credit shall be allowed when the reinsurance is ceded to an assuming insurer that maintains a trust fund in a qualified United States financial institution as defined in section 20-3601, subsection B for the payment of the valid claims of its United States ceding insurers, their assigns and successors in interest. To enable the director to determine the sufficiency of the trust fund, the assuming insurer shall report annually to the director information that is substantially the same as the information licensed insurers are required to report on the national association of insurance commissioners annual statement form. The assuming insurer shall submit to examination of its books and records by the director and bear the expense of examination.

2. Credit for reinsurance may not be granted under this subsection unless the form of the trust and any amendments to the trust have been approved by either:

(a) The insurance commissioner of the state where the trust is domiciled.

(b) The insurance commissioner of another state who, pursuant to the terms of the trust instrument, has accepted principal regulatory oversight of the trust.

3. The form of the trust and any trust amendments also shall be filed with the insurance commissioner of every state in which the ceding insurer beneficiaries of the trust are domiciled. The trust instrument shall provide that contested claims shall be valid and enforceable on the final order of any court of competent jurisdiction in the United States. The trust shall vest legal title to its assets in its trustees for the benefit of the assuming insurer's United States ceding insurers, their assigns and successors in interest. The trust and the assuming insurer shall be subject to examination as determined by the director.

4. The trust shall remain in effect for as long as the assuming insurer has outstanding obligations due under the reinsurance agreements subject to the trust. Not later than February 28 of each year, the trustee of the trust shall report to the director in writing the balance of the trust and listing the trust's investments at the preceding year end and shall certify the date of termination of the trust, if so planned, or certify that the trust will not expire before the following December 31.

5. The following requirements apply to the following categories of assuming insurer:

(a) The trust fund for a single assuming insurer shall consist of monies in trust in an amount not less than the assuming insurer's liabilities attributable to reinsurance ceded by United States ceding insurers, and, in addition, the assuming insurer shall maintain a trusteed surplus of at least $20,000,000, except as provided in subdivision (b) of this paragraph.

(b) At any time after the assuming insurer has permanently discontinued underwriting new business secured by the trust for at least three full years, the insurance commissioner with principal regulatory oversight of the trust may authorize a reduction in the required trusteed surplus, but only after a finding, based on an assessment of the risk, that the new required surplus level is adequate for the protection of United States ceding insurers, policyholders and claimants in light of reasonably foreseeable adverse loss development. The risk assessment may involve an actuarial review, including an independent analysis of reserves and cash flows, and shall consider all material risk factors, including when applicable the lines of business involved, the stability of the incurred loss estimates and the effect of the surplus requirements on the assuming insurer's liquidity or solvency. The minimum required trusteed surplus may not be reduced to an amount that is less than thirty percent of the assuming insurer's liabilities attributable to reinsurance ceded by United States ceding insurers covered by the trust.

(c) In the case of a group, including incorporated and individual unincorporated underwriters, all of the following apply:

(i) For reinsurance ceded under reinsurance agreements with an inception, amendment or renewal date on or after January 1, 1993, the trust shall consist of a trusteed account in an amount that is not less than the respective underwriters' several liabilities attributable to business ceded by United States domiciled ceding insurers to any underwriter of the group.

(ii) For reinsurance ceded under reinsurance agreements with an inception date on or before December 31, 1992, and not amended or renewed after that date, notwithstanding any other provision of this article, the trust shall consist of a trusteed account in an amount not less than the respective underwriters' several insurance and reinsurance liabilities attributable to business written in the United States.

(iii) In addition to the trusts described in items (i) and (ii) of this subdivision, the group shall maintain in trust a trusteed surplus of which $100,000,000 shall be held jointly for the benefit of the United States domiciled ceding insurers of any member of the group for all years of account.

(iv) The incorporated members of the group may not be engaged in any business other than underwriting as a member of the group and shall be subject to the same level of regulation and solvency control by the group's domiciliary regulator as are the unincorporated members.

(v) Within ninety days after its financial statements are due to be filed with the group's domiciliary regulator, the group shall provide to the director an annual certification by the group's domiciliary regulator of the solvency of each underwriter member, or if a certification is unavailable, financial statements, prepared by independent public accountants, of each underwriter member of the group.

(d) In the case of a group of incorporated underwriters under common administration, the group shall meet the following requirements:

(i) Have continuously transacted an insurance business outside the United States for at least three years immediately before making application for accreditation.

(ii) Maintain aggregate policyholders' surplus of at least $10,000,000,000.

(iii) Maintain a trust fund in an amount not less than the group's several liabilities attributable to business ceded by United States domiciled ceding insurers to any member of the group pursuant to reinsurance contracts issued in the name of the group.

(iv) Maintain a joint trusteed surplus of which $100,000,000 shall be held jointly for the benefit of United States domiciled ceding insurers of any member of the group as additional security for these liabilities.

(v) Within ninety days after its financial statements are due to be filed with the group's domiciliary regulator, make available to the director an annual certification of each underwriter member's solvency by the member’s domiciliary regulator and financial statements of each underwriter member of the group prepared by its independent public accountant.

G. Credit shall be allowed when the reinsurance is ceded to an assuming insurer that has been certified by the director as a reinsurer in this state and that secures its obligations in accordance with the requirements of this subsection, and all of the following apply:

1. To be eligible for certification, the assuming insurer shall meet the following requirements:

(a) The assuming insurer must be domiciled and licensed to transact insurance or reinsurance in a qualified jurisdiction, as determined by the director pursuant to paragraph 3 of this subsection.

(b) The assuming insurer must maintain minimum capital and surplus, or its equivalent, in an amount to be determined by the director pursuant to rule.

(c) The assuming insurer must maintain financial strength ratings from two or more rating agencies deemed acceptable by the director pursuant to rule.

(d) The assuming insurer must agree to submit to the jurisdiction of this state, must appoint the director as its agent for service of process in this state and must agree to provide security for one hundred percent of the assuming insurer's liabilities attributable to reinsurance ceded by United States ceding insurers if it resists enforcement of a final United States judgment.

(e) The assuming insurer must agree to meet applicable information filing requirements as determined by the director, both with respect to an initial application for certification and on an ongoing basis.

(f) The assuming insurer must satisfy any other requirements for certification deemed relevant by the director.

2. An association that includes incorporated and individual unincorporated underwriters may be a certified reinsurer. To be eligible for certification, in addition to satisfying the requirements prescribed in paragraph 1 of this subsection:

(a) The association shall satisfy its minimum capital and surplus requirements through the capital and surplus equivalents, net of liabilities, of the association and its members, which shall include a joint central fund that may be applied to any unsatisfied obligation of the association or any of its members, in an amount determined by the director to provide adequate protection.

(b) The incorporated members of the association may not be engaged in any business other than underwriting as a member of the association and shall be subject to the same level of regulation and solvency control by the association's domiciliary regulator as are the unincorporated members.

(c) Within ninety days after its financial statements are due to be filed with the association's domiciliary regulator, the association shall provide to the director an annual certification by the association's domiciliary regulator of the solvency of each underwriter member or, if a certification is unavailable, financial statements, prepared by independent public accountants, of each underwriter member of the association.

3. The director shall create and publish a list of qualified jurisdictions under which an assuming insurer that is licensed and domiciled in a qualified jurisdiction is eligible to be considered for certification by the director as a certified reinsurer, and all of the following apply:

(a) To determine whether the domiciliary jurisdiction of a non-United States assuming insurer is eligible to be recognized as a qualified jurisdiction, the director shall evaluate the appropriateness and effectiveness of the reinsurance supervisory system of the jurisdiction, both initially and on an ongoing basis, and consider the rights, the benefits and the extent of reciprocal recognition afforded by the non-United States jurisdiction to reinsurers licensed and domiciled in the United States. A qualified jurisdiction must agree to share information and cooperate with the director with respect to all certified reinsurers domiciled within that jurisdiction. A jurisdiction may not be recognized as a qualified jurisdiction if the director has determined that the jurisdiction does not adequately and promptly enforce final United States judgments and arbitration awards. The director may consider additional factors.

(b) A list of qualified jurisdictions shall be published through the national association of insurance commissioners committee process. The director shall consider this list in determining qualified jurisdictions. If the director approves a jurisdiction as qualified that does not appear on the list of qualified jurisdictions, the director shall provide thoroughly documented justification in accordance with criteria to be developed under rule.

(c) United States jurisdictions that meet the requirement for accreditation under the national association of insurance commissioners financial standards and accreditation program shall be recognized as qualified jurisdictions.

(d) If a certified reinsurer's domiciliary jurisdiction ceases to be a qualified jurisdiction, the director may suspend the reinsurer's certification indefinitely, in lieu of revocation.

4. The director shall assign a rating to each certified reinsurer, giving due consideration to the financial strength ratings that have been assigned by rating agencies deemed acceptable to the director pursuant to rule. The director shall publish a list of all certified reinsurers and their ratings.

5. A certified reinsurer shall secure obligations assumed from United States ceding insurers under this subsection at a level that is consistent with its rating, as specified in rules adopted by the director, and all of the following apply:

(a) For a domestic ceding insurer to qualify for full financial statement credit for reinsurance ceded to a certified reinsurer, the certified reinsurer shall maintain security in a form that is acceptable to the director and that is consistent with section 20-3603, or in a multibeneficiary trust in accordance with subsection F of this section, except as otherwise provided in this subsection.

(b) If a certified reinsurer maintains a trust to fully secure its obligations subject to subsection F of this section and chooses to secure its obligations incurred as a certified reinsurer in the form of a multibeneficiary trust, the certified reinsurer shall maintain separate trust accounts for its obligations incurred under reinsurance agreements issued or renewed as a certified reinsurer with reduced security as allowed by this subsection or comparable laws of other United States jurisdictions and for its obligations subject to subsection F of this section. It shall be a condition to the grant of certification under this subsection that the certified reinsurer shall have bound itself, by the language of the trust and agreement with the insurance commissioner with principal regulatory oversight of each such trust account, to fund, on termination of any such trust account, out of the remaining surplus of such trust any deficiency of any other such trust account.

(c) The minimum trusteed surplus requirements provided in subsection F of this section are not applicable with respect to a multibeneficiary trust maintained by a certified reinsurer for the purpose of securing obligations incurred under this subsection, except that such a trust shall maintain a minimum trusteed surplus of $10,000,000.

(d) With respect to obligations incurred by a certified reinsurer under this subsection, if the security is insufficient, the director shall reduce the allowable credit by an amount proportionate to the deficiency, and may impose further reductions in allowable credit on finding that there is a material risk that the certified reinsurer's obligations will not be paid in full when due.

(e) A certified reinsurer whose certification has been terminated for any reason shall be treated as a certified reinsurer required to secure one hundred percent of its obligations. If the director continues to assign a higher rating as allowed by other provisions of this section, this requirement does not apply to a certified reinsurer in inactive status or to a reinsurer whose certification has been suspended. For the purposes of this subdivision, "terminated" refers to revocation, suspension, voluntary surrender and inactive status.

6. If an applicant for certification has been certified as a reinsurer in a national association of insurance commissioners accredited jurisdiction, the director may defer to that jurisdiction's certification and to the rating assigned by that jurisdiction, and the assuming insurer shall be considered to be a certified reinsurer in this state.

7. To continue to qualify for a reduction in security for its in-force business, a certified reinsurer that ceases to assume new business in this state may request to maintain its certification in inactive status. An inactive certified reinsurer shall continue to comply with all applicable requirements of this subsection, and the director shall assign a rating that takes into account, if relevant, the reasons why the reinsurer is not assuming new business.

H. Credit shall be allowed when the reinsurance is ceded to an assuming insurer meeting each of the following conditions:

1. The assuming insurer must have its head office or be domiciled in, as applicable, and be licensed in a reciprocal jurisdiction. A reciprocal jurisdiction is a jurisdiction that meets one of the following:

(a) A non-United States jurisdiction that is subject to an in-force covered agreement with the United States, each within its legal authority, or, in the case of a covered agreement between the United States and the European Union, that is a member state of the European Union.

(b) A United States jurisdiction that meets the requirements for accreditation under the national association of insurance commissioners financial standards and accreditation program.

(c) A qualified jurisdiction, as determined by the director pursuant to subsection G, paragraph 3 of this section that is not otherwise described in subdivision (a) or (b) of this paragraph and that meets certain additional requirements, consistent with the terms and conditions of in-force covered agreements, as specified by the director in rule.

2. The assuming insurer must have and maintain, on an ongoing basis, minimum capital and surplus, or its equivalent, calculated according to the methodology of its domiciliary jurisdiction, in an amount to be prescribed in rule. If the assuming insurer is an association, including incorporated and individual unincorporated underwriters, it must have and maintain, on an ongoing basis, minimum capital and surplus equivalents, net of liabilities, calculated according to the methodology applicable in its domiciliary jurisdiction and a central fund containing a balance in amounts to be prescribed in rule.

3. The assuming insurer must have and maintain, on an ongoing basis, a minimum solvency or capital ratio, as applicable, that is prescribed in rule. If the assuming insurer is an association, including incorporated and individual unincorporated underwriters, it must have and maintain, on an ongoing basis, a minimum solvency or capital ratio in the reciprocal jurisdiction where the assuming insurer has its head office or is domiciled, as applicable, and is also licensed.

4. The assuming insurer must agree and provide adequate assurance to the director, in a form specified by the director pursuant to rule, as follows:

(a) The assuming insurer must provide a prompt written notice and explanation to the director if it falls below the minimum requirements prescribed in paragraph 2 or 3 of this subsection or if any regulatory action is taken against it for serious noncompliance with applicable law.

(b) The assuming insurer must consent in writing to the jurisdiction of the courts of this state and to the appointment of the director as agent for service of process. The director may require that consent for service of process be provided to the director and included in each reinsurance agreement. This subdivision does not limit, or in any way alter, the capacity of parties to a reinsurance agreement to agree to alternative dispute resolution mechanisms, except to the extent such agreements are unenforceable under applicable insolvency or delinquency laws.

(c) The assuming insurer must consent in writing to pay all final judgments, wherever enforcement is sought, obtained by a ceding insurer or its legal successor, that have been declared enforceable in the jurisdiction where the judgment was obtained.

(d) Each reinsurance agreement must include a provision requiring the assuming insurer to provide security in an amount equal to one hundred percent of the assuming insurer's liabilities attributable to reinsurance ceded pursuant to that agreement if the assuming insurer resists enforcement of a final judgment that is enforceable under the law of the jurisdiction in which it was obtained or a properly enforceable arbitration award, whether obtained by the ceding insurer or by its legal successor on behalf of its resolution estate.

(e) The assuming insurer must confirm that it is not presently participating in any solvent scheme of arrangement that involves this state's ceding insurers, and agree to notify the ceding insurer and the director and to provide security in an amount equal to one hundred percent of the assuming insurer's liabilities to the ceding insurer, should the assuming insurer enter into such a solvent scheme of arrangement. The security shall be in a form that is consistent with the requirements prescribed in subsection G of this section and section 20-3603 and as specified by the director in rule.

5. If requested by the director, the assuming insurer or its legal successor must provide on behalf of itself and any legal predecessors certain documentation to the director as specified by the director in rule.

6. The assuming insurer must maintain a practice of prompt payment of claims under reinsurance agreements, pursuant to criteria prescribed in rule.

7. The assuming insurer's supervisory authority must confirm to the director on an annual basis, as of the preceding December 31 or at the annual date otherwise statutorily reported to the reciprocal jurisdiction, that the assuming insurer complies with the requirements prescribed in paragraphs 2 and 3 of this subsection.

8. The assuming insurer may provide the director with additional information on a voluntary basis.

I. The director:

1. Shall timely create and publish a list of reciprocal jurisdictions that includes any reciprocal jurisdiction prescribed in subsection H, paragraph 1, subdivisions (a) and (b) of this section and shall consider including any other reciprocal jurisdiction included on the national association of insurance commissioners list of reciprocal jurisdictions published through the national association of insurance commissioners committee process. The director may approve a jurisdiction that does not appear on the national association of insurance commissioners list of reciprocal jurisdictions in accordance with criteria to be developed under rules issued by the director.

2. May remove a jurisdiction from the list of reciprocal jurisdictions on a determination that the jurisdiction no longer meets the requirements of a reciprocal jurisdiction, in accordance with a process prescribed in rules issued by the director, except that the director shall not remove from the list a reciprocal jurisdiction prescribed in subsection H, paragraph 1, subdivisions (a) and (b) of this section. On removal of a reciprocal jurisdiction from the list, credit for reinsurance ceded to an assuming insurer that has its home office or is domiciled in that jurisdiction shall be allowed, if otherwise allowed by law.

3. Shall timely create and publish a list of assuming insurers that have satisfied the conditions prescribed in this section and to which cessions shall be granted credit in accordance with this section. The director may add an assuming insurer to the list if a national association of insurance commissioners accredited jurisdiction has added the assuming insurer to a list of such assuming insurers or if, on initial eligibility, the assuming insurer submits the information to the director as required under subsection H, paragraph 4 of this section and complies with any additional requirements that the director may impose by rule, except to the extent that they conflict with an applicable covered agreement.

4. May revoke or suspend the eligibility of an assuming insurer for recognition under this subsection in accordance with procedures prescribed in rule, if the director determines that the assuming insurer no longer meets one or more of the requirements under this section. While the assuming insurer's eligibility is suspended, a reinsurance agreement issued, amended or renewed after the effective date of the suspension does not qualify for credit except to the extent that the assuming insurer's obligations under the contract are secured in accordance with section 20-3603. If the assuming insurer's eligibility is revoked, credit for reinsurance may not be granted after the effective date of the revocation with respect to any reinsurance agreements entered into by the assuming insurer, including reinsurance agreements entered into before the date of revocation, except to the extent that the assuming insurer's obligations under the contract are secured in a form acceptable to the director and are consistent with the parameters prescribed in section 20-3603.

J. If subject to a legal process of rehabilitation, liquidation or conservation, as applicable, the ceding insurer, or its representative, may seek and, if determined appropriate by the court in which the proceedings are pending, may obtain an order requiring that the assuming insurer post security for all outstanding ceded liabilities.

K. Subsection H of this section does not:

1. Limit or in any way alter the capacity of parties to a reinsurance agreement to agree on requirements for security or other terms in that reinsurance agreement, except as expressly prohibited by this article or another applicable law or rule.

2. Authorize an assuming insurer to withdraw or reduce the security provided under any reinsurance agreement except as allowed by the terms of the agreement.

3. Limit or in any way alter the capacity of parties to any reinsurance agreement to renegotiate the agreement.

L. Credit may be taken under Subsection H of this section only for reinsurance agreements entered into, amended or renewed on or after the effective date of this section, and only with respect to losses incurred and reserves reported on or after the later of the date on which the assuming insurer has met all eligibility requirements pursuant to subsection H of this section and the effective date of the new reinsurance agreement, amendment or renewal. This subsection does not alter or impair a ceding insurer's right to take credit for reinsurance, to the extent that credit is not available under this section, as long as the reinsurance qualifies for credit under any other applicable provision of this article.

M. Credit shall be allowed when the reinsurance is ceded to an assuming insurer not meeting the requirements of subsection C, D, E, F, G or H of this section, but only as to the insurance of risks located in jurisdictions where the reinsurance is required by applicable law or regulation of that jurisdiction.

N. If the assuming insurer is not licensed, accredited or certified to transact insurance or reinsurance in this state, the credit allowed by subsections E and F of this section may not be allowed unless the assuming insurer agrees in the reinsurance agreements:

1. That if the assuming insurer fails to perform its obligations under the terms of the reinsurance agreement, the assuming insurer, at the request of the ceding insurer, will submit to the jurisdiction of any court of competent jurisdiction in any state of the United States, will comply with all requirements necessary to give the court jurisdiction and will abide by the final decision of the court or of any appellate court in the event of an appeal. This subsection is not intended to conflict with or override the obligation of the parties to a reinsurance agreement to arbitrate their disputes, if this obligation is created in the agreement.

2. To designate the director or a designated attorney as its true and lawful attorney on whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the ceding insurer.

O. If the assuming insurer does not meet the requirements prescribed in subsection C, D, E or H of this section, the credit allowed by subsection F or G of this section may not be allowed unless the assuming insurer agrees in the trust agreements to the following conditions:

1. Notwithstanding any other provisions in the trust instrument, if the trust fund is inadequate because it contains an amount that is less than the amount required by subsection F, paragraph 5 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, the trustee shall comply with an order of the insurance commissioner with regulatory oversight over the trust or with an order of a court of competent jurisdiction directing the trustee to transfer to the insurance commissioner with regulatory oversight all of the assets of the trust fund.

2. The assets shall be distributed by and claims shall be filed with and valued by the insurance 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.

3. If the insurance commissioner with regulatory oversight determines that the assets of the trust fund or any part of the assets are not necessary to satisfy the claims of the United States ceding insurers of the grantor of the trust, the assets or part of the assets shall be returned by the insurance commissioner with regulatory oversight to the trustee for distribution in accordance with the trust agreement.

4. The grantor shall waive any right otherwise available to it under United States law that is inconsistent with this subsection.

P. If an accredited or certified reinsurer ceases to meet the requirements for accreditation or certification, the director may suspend or revoke the reinsurer's accreditation or certification, and the following apply:

1. The director must give the reinsurer notice and an opportunity for a hearing. The suspension or revocation may not take effect until after the director's order on the hearing, unless either:

(a) The reinsurer waives its right to a hearing.

(b) The director's order is based on regulatory action by the reinsurer's domiciliary jurisdiction or the voluntary surrender or termination of the reinsurer's eligibility to transact insurance or reinsurance business in its domiciliary jurisdiction or in the primary certifying state of the reinsurer under subsection G, paragraph 6 of this section.

(c) The director finds that an emergency requires immediate action and a court of competent jurisdiction has not stayed the director's action.

2. While a reinsurer's accreditation or certification is suspended, a reinsurance contract issued or renewed after the effective date of the suspension does not qualify for credit except to the extent that the reinsurer's obligations under the contract are secured in accordance with section 20-3603. If a reinsurer's accreditation or certification is revoked, a credit for reinsurance may not be granted after the effective date of the revocation except to the extent that the reinsurer's obligations under the contract are secured in accordance with subsection G, paragraph 5 of this section or section 20-3603.

Q. A ceding insurer shall take steps to:

1. Manage its reinsurance recoverables proportionate to its own book of business. A domestic ceding insurer shall notify the director within thirty days after reinsurance recoverables from any single assuming insurer, or group of affiliated assuming insurers, exceed fifty percent of the domestic ceding insurer's last reported surplus to policyholders, or after it is determined that reinsurance recoverables from any single assuming insurer, or group of affiliated assuming insurers, are likely to exceed this limit. The notification shall demonstrate that the exposure is safely managed by the domestic ceding insurer.

2. A ceding insurer shall take steps to diversify its reinsurance program. A domestic ceding insurer shall notify the director within thirty days after ceding to any single assuming insurer, or group of affiliated assuming insurers, more than twenty percent of the ceding insurer's gross written premium in the prior calendar year, or after it has determined that the reinsurance ceded to any single assuming insurer, or group of affiliated assuming insurers, is likely to exceed this limit. The notification shall demonstrate that the exposure is safely managed by the domestic ceding insurer.

R. For the purposes of this section, "covered agreement" means an agreement that is entered into pursuant to the Dodd-Frank Wall Street reform and consumer protection act (31 United States code sections 313 and 314), that is currently in effect or in a period of provisional application and that addresses the elimination, under specified conditions, of collateral requirements as a condition for entering into any reinsurance agreement with a ceding insurer domiciled in this state or for allowing the ceding insurer to recognize credit for reinsurance. END_STATUTE

START_STATUTE20-3603. Asset or reduction from liability for reinsurance ceded by a domestic insurer to an assuming insurer

A. An asset or a reduction from liability for the reinsurance ceded by a domestic insurer to an assuming insurer that does not meet the requirements of section 20-3602 shall be allowed in an amount not exceeding the liabilities carried by the ceding insurer. The director may adopt by rule pursuant to section 20-3604, subsection B specific additional requirements relating to or prescribing any or all of the following:

1. The valuation of assets or reserve credits.

2. The amount and forms of security supporting reinsurance arrangements described in subsection B of this section.

3. The circumstances pursuant to which credit will be reduced or eliminated.

B. The reduction shall be in the amount of funds held by or on behalf of the ceding insurer, including funds held in trust for the ceding insurer, under a reinsurance contract with the assuming insurer as security for the payment of obligations thereunder, if the security is held in the United States subject to withdrawal solely by, and under the exclusive control of, the ceding insurer or, in the case of a trust, held in a qualified United States financial institution as defined in section 20-3601, subsection B. This security may be in the form of:

1. Cash.

2. Securities listed by the securities valuation office of the national association of insurance commissioners, including those deemed exempt from filing as defined by the purposes and procedures manual of the securities valuation office, and qualifying as admitted assets.

3. Clean, irrevocable and unconditional letters of credit, issued or confirmed by a qualified United States financial institution, as defined in section 20-3601, subsection A, effective not later than December 31 of the year for which the filing is being made, and in the possession of, or in trust for, the ceding insurer on or before the filing date of its annual statement. Letters of credit that meet applicable standards of issuer acceptability as of the dates of their issuance or confirmation, notwithstanding the issuing or confirming institution's subsequent failure to meet applicable standards of issuer acceptability, shall continue to be acceptable as security until their expiration, extension, renewal, modification or amendment, whichever occurs first.

4. Any other form of security acceptable to the director. END_STATUTE

START_STATUTE20-3604. Rules

A. The director may adopt rules pursuant to title 41, chapter 6 to carry out this article.

B. The rules may include regulation of reinsurance arrangements relating to any of the following:

1. Life insurance policies with guaranteed nonlevel gross premiums or guaranteed nonlevel benefits.

2. Universal life insurance policies with provisions resulting in the ability of a policyholder to keep a policy in force over a secondary guarantee period.

3. Variable annuities with guaranteed death or living benefits.

4. Long-term care insurance policies.

5. Any other life and health insurance and annuity products for which the national association of insurance commissioners adopts model regulatory requirements with respect to credit for reinsurance.

C. Any rule adopted pursuant to subsection B, paragraph 1 or 2 of this section may apply to any treaty that contains either or both:

1. Policies issued on or after January 1, 2015.

2. Policies issued before January 1, 2015, if risk pertaining to such pre-2015 policies is ceded in connection with the treaty, in whole or in part, on or after January 1, 2015.

D. Any rule adopted pursuant to subsection B of this section:

1. May require the ceding insurer, in calculating the amounts or forms of security required to be held pursuant to rules adopted by the department, to use the valuation manual adopted by the national association of insurance commissioners under section 11B(1) of the national association of insurance commissioners standard valuation law, including all amendments adopted by the national association of insurance commissioners and in effect on the date as of which the calculation is made, to the extent applicable.

2. Does not apply to cessions to an assuming insurer that is licensed in at least twenty-six states or that is licensed in at least ten states and licensed or accredited in a total of at least thirty-five states and that either:

(a) Meets the conditions prescribed in section 20-3602, subsection H in this state.

(b) Is certified in this state.

(c) Maintains at least $250,ooo,000 in capital and surplus as determined in accordance with the accounting practices and procedures manual and amendments adopted by the national association of insurance commissioners, excluding the impact of any allowed or prescribed practices.

E. The authority to adopt rules pursuant to subsection B of this section does not limit the department's general authority to adopt rules pursuant to subsection A of this section. END_STATUTE

START_STATUTE20-3605. Reinsurance agreements affected

This article applies to all cessions after the effective date of this article under reinsurance agreements that have an inception, anniversary or renewal date not less than six months after the effective date of this article. END_STATUTE

Sec. 10. Purpose, intent and declaration

A. The purpose of this act is to protect the interest of insureds, claimants, ceding insurers, assuming insurers and the public generally.

B. The legislature intends to ensure adequate regulation of insurers and reinsurers and adequate protection for those to whom the insurers and reinsurers owe obligations. In furtherance of that state interest, the legislature provides a mandate that on the 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 shall be maintained in the United States and claims shall be filed with and valued by the state insurance commissioner with regulatory oversight, and the assets shall be 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.

C. The legislature declares that the matters contained in this act are fundamental to the business of insurance in accordance with 15 United States code sections 1011 and 1012.