| (e) Requirements applicable to covered policies to
obtain credit for reinsurance; opportunity for remediation.
(1) General requirements. Subject to subsection (c)
of this section and paragraph (2) of this subsection, credit for reinsurance
will be allowed with respect to ceded liabilities related to covered
policies under Insurance Code §§493.102, 493.1033 - 493.1038,
493.104, and 493.108, only if, in addition to all other requirements
imposed by law or rule, the following requirements are met on a reinsurance
agreement-by-reinsurance agreement basis:
(A) the ceding insurer's statutory policy reserves
with respect to the covered policies are established in full and in
accordance with Insurance Code Chapter 425, Subchapter B, and related
rules and actuarial guidelines. Credit claimed for any reinsurance
agreement subject to this section may not exceed the proportionate
share of those reserves ceded under the reinsurance agreement;
(B) the ceding insurer determines the required level
of primary security with respect to each reinsurance agreement subject
to this section and provides support for its calculation that the
Commissioner finds acceptable;
(C) funds consisting of primary security, in an amount
at least equal to the required level of primary security, are held
by or on behalf of the ceding insurer, as security under the reinsurance
agreement within the meaning of Insurance Code §493.104 on a
funds withheld, trust, or modified coinsurance basis;
(D) funds consisting of other security, in an amount
at least equal to any portion of the statutory reserves as to which
primary security is not held under subparagraph (C) of this paragraph,
are held by or on behalf of the ceding insurer as security under the
reinsurance agreement within the meaning of Insurance Code §493.104;
(E) any trust used to satisfy the requirements of this
subsection must comply with all of the conditions and qualifications
of §7.609 of this title, except that:
(i) funds consisting of primary security or other security
held in trust, must be valued for subsection (d)(2) of this section
according to the valuation rules in subsection (d)(2) of this section,
as applicable;
(ii) there are no affiliate investment limitations
for any security held in the trust if the security is not needed to
satisfy the requirements of paragraph (1)(C) of this subsection;
(iii) the reinsurance agreement must prohibit withdrawals
or substitutions of trust assets that would leave the fair market
value of the primary security in the trust when aggregated with primary
security outside the trust that is held by or on behalf of the ceding
insurer in the manner paragraph (1)(C) of this subsection requires
at less than 102% of the level that paragraph (1)(C) of this subsection
requires at the time of the withdrawal or substitution; and
(iv) the determination of reserve credit under §7.609
of this title will be determined according to the valuation rules
in subsection (d)(2) of this section, as applicable; and
(F) the Commissioner has approved the reinsurance agreement.
(2) Requirements at inception date and on an ongoing
basis; remediation.
(A) The requirements of paragraph (1) of this subsection
must be satisfied as of the date that risks under covered policies
are ceded if that date is on or after the effective date of this section
and on an ongoing basis after that date. A ceding insurer may never
take or consent to any action or series of actions that would result
in a deficiency under paragraph (1)(C) or (D) of this subsection with
respect to any reinsurance agreement under which covered policies
have been ceded. In the event a ceding insurer becomes aware at any
time that such a deficiency exists, it must use its best efforts to
arrange to eliminate the deficiency as expeditiously as possible.
(B) Before the due date of each quarterly or annual
statement, each life insurance company that has ceded reinsurance
within the scope of subsection (b) of this section must perform an
analysis, on a reinsurance agreement-by-reinsurance agreement basis,
to determine, as to each reinsurance agreement under which covered
policies have been ceded, whether as of the end of the immediately
preceding calendar quarter (the valuation date) the requirements of
paragraph (1)(C) and (D) of this subsection were satisfied. The ceding
insurer must establish a liability equal to the excess of the credit
for reinsurance taken over the amount of primary security actually
held under paragraph (1)(C) of this subsection, unless:
(i) the requirements of paragraph (1)(C) and (D) of
this subsection were fully satisfied as of the valuation date as to
the reinsurance agreement; or
(ii) any deficiency has been eliminated before the
due date of the quarterly or annual statement to which the valuation
date relates through the addition of primary security or other security,
or both, in the amount and in the form that would have caused the
requirements of paragraph (1)(C) and (D) of this subsection to be
fully satisfied as of the valuation date.
(C) Nothing in paragraph (2)(B) of this subsection
may be construed to allow a ceding company to maintain any deficiency
under paragraph (1)(C) and (D) of this subsection longer than is reasonably
necessary to eliminate the deficiency.
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