| (1) A reinsurance agreement, which is entered into
in conjunction with a trust agreement and the establishment of a trust
account, must contain provisions that:
(A) require the assuming insurer to enter into a trust
agreement and to establish a trust account for the benefit of the
ceding insurer, and specifying what such agreement is to cover;
(B) stipulate that assets deposited in the trust account
must be valued, according to their current fair market value, and
must consist only of, in any combination, cash (United States legal
tender), certificates of deposit (issued by a bank organized under
the laws of the United States, or located in the United States, and
payable in United States legal tender), or investments of the types
permitted by Insurance Code §493.104 provided that such investments
are issued by an institution that is not the parent, subsidiary, or
affiliate of either the grantor or the beneficiary;
(C) require that all settlements of account between
the ceding insurer and the assuming insurer be made in cash or its
equivalent; and
(D) stipulate that the assuming insurer and the ceding
insurer agree that the assets in the trust account, established pursuant
to the provisions of the reinsurance agreement, may be withdrawn by
the ceding insurer at any time, notwithstanding any other provisions
in the reinsurance agreement, and must be utilized and applied by
the ceding insurer or its successors in interest by operation of law,
including any liquidator, rehabilitator, receiver, or conservator
of such company, without diminution because of insolvency on the part
of the ceding insurer or the assuming insurer, only for the following
purposes:
(i) to reimburse the ceding insurer for the assuming
insurer's share of premiums returned to the owners of policies reinsured
under the reinsurance agreement on account of cancellations of such
policies;
(ii) to reimburse the ceding insurer for the assuming
insurer's share of surrenders and benefits or losses paid by the ceding
insurer pursuant to the provisions of the policies reinsured under
the reinsurance agreement;
(iii) in the event of notice of termination of the
trust, to fund an account with the ceding insurer in an amount at
least equal to the deduction, for reinsurance ceded, from the ceding
insurer's liabilities for policies ceded under the agreement, such
account must include amounts for policy reserves, claims and losses
incurred (including losses incurred but not reported), loss adjustment
expenses, and unearned premiums reserves; and
(iv) to pay any other amounts due the ceding insurer
under the reinsurance agreement.
(2) The reinsurance agreement may also contain provisions
that:
(A) give the assuming insurer the right to seek approval
from the ceding insurer to withdraw from the aforementioned trust
account all or any part of the assets contained therein and transfer
such assets to the assuming insurer, provided:
(i) the assuming insurer must at the time of such withdrawal,
replace the withdrawn assets with other qualified assets having a
market value equal to the market value of the assets withdrawn so
as to maintain at all times the deposit in the required amount; or
(ii) after such withdrawal and transfer, the market
value of the trust account is no less than 102 percent of the required
amount; and
(iii) the ceding insurer must be the sole judge as
to the application of this subparagraph, but must not unreasonably
or arbitrarily withhold its approval;
(B) provide for the return of any amount withdrawn
in excess of the actual amounts required for paragraph (1)(D)(i)-(iii)
of this subsection or, in the case of paragraph (1)(D)(iv) of this
subsection, any amounts that are subsequently determined not to be
due;
(C) provide for interest payments to the assuming insurer,
at a rate not in excess of the rate of interest earned, on the amounts
held pursuant to paragraph (1)(D)(iii) of this subsection; or
(D) permit the award by any arbitration panel or court
of competent jurisdiction of:
(i) interest at a rate different from that provided
in subparagraph (C) of this paragraph;
(ii) court or arbitration costs;
(iii) attorney's fees; and
(iv) any other reasonable expenses.
(e) Reduction in liability for reinsurance ceded to
an unauthorized insurer. A trust agreement may be used to reduce any
liability for reinsurance ceded to an unauthorized assuming insurer
in financial statements required to be filed with TDI in compliance
with the provisions of this section when established on or before
the date of the financial statement of the ceding insurer. Further,
the reduction for the existence of an acceptable trust account may
be up to the current fair market value of acceptable assets available
to be withdrawn from the trust account at that time, but such reduction
must be no greater than the specific obligations under the reinsurance
agreement that the trust account was established to secure.
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