Full Text of SB0870 99th General Assembly
SB0870eng 99TH GENERAL ASSEMBLY |
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| 1 | | AN ACT concerning regulation.
| 2 | | Be it enacted by the People of the State of Illinois,
| 3 | | represented in the General Assembly:
| 4 | | Section 5. The Illinois Insurance Code is amended by | 5 | | changing Section 173.1 as follows:
| 6 | | (215 ILCS 5/173.1) (from Ch. 73, par. 785.1)
| 7 | | Sec. 173.1. Credit allowed a domestic ceding insurer.
| 8 | | (1) Except as otherwise provided under Article VIII 1/2 of | 9 | | this Code and
related provisions of the Illinois Administrative | 10 | | Code, credit for
reinsurance shall be allowed a domestic ceding | 11 | | insurer as
either an admitted asset or a deduction from | 12 | | liability on account of
reinsurance ceded only when the | 13 | | reinsurer meets the requirements of paragraph (A)
subsection | 14 | | (1)(A) or (B) or (B-5) or (C) or (C-5) or (D) of this | 15 | | subsection (1) .
Credit shall be allowed under paragraph (A), | 16 | | subsection (1)(A) or (B) , or (B-5) of this subsection (1) only | 17 | | as respects
cessions of those kinds or classes of business in | 18 | | which the assuming insurer is
licensed or otherwise permitted | 19 | | to write or assume in its state of domicile, or
in the case of a | 20 | | U.S. branch of an alien assuming insurer, in the state through
| 21 | | which it is entered and licensed to transact insurance or | 22 | | reinsurance. Credit
shall be allowed under paragraph (B-5) or | 23 | | (C) of this subsection (1) (C) of this Section only
if the |
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| 1 | | applicable requirements of paragraph (E) of this subsection (1)
| 2 | | subsection (1)(E) have been
satisfied.
| 3 | | (A) Credit shall be allowed when the reinsurance is | 4 | | ceded to an assuming
insurer that is authorized in this | 5 | | State
to transact the types of insurance ceded and has at | 6 | | least $5,000,000 in
capital and surplus.
| 7 | | (B) Credit shall be allowed when the reinsurance is | 8 | | ceded to an assuming
insurer that is accredited as a | 9 | | reinsurer in this State. An accredited
reinsurer is one | 10 | | that:
| 11 | | (1) files with the Director evidence of its | 12 | | submission to this State's
jurisdiction;
| 13 | | (2) submits to this State's authority to examine | 14 | | its books and records;
| 15 | | (3) is licensed to transact insurance or | 16 | | reinsurance in at least one
state, or in the case of a | 17 | | U.S. branch of an alien assuming insurer is
entered | 18 | | through and licensed to transact insurance or | 19 | | reinsurance in at
least one state;
| 20 | | (4) files annually with the Director a copy of its | 21 | | annual statement
filed with the insurance department | 22 | | of its state of domicile and a copy of
its most recent | 23 | | audited financial statement; and
| 24 | | (5) maintains a surplus as regards policyholders | 25 | | in an amount that is
not less than $20,000,000 and | 26 | | whose accreditation has been approved by the
Director. |
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| 1 | | No credit shall be allowed a domestic ceding insurer, | 2 | | if the
assuming insurers' accreditation has been | 3 | | revoked by the Director after
notice and hearing.
| 4 | | (B-5)(1) Credit shall be allowed when the reinsurance | 5 | | is ceded to an assuming insurer that is domiciled in, | 6 | | or in the case of a U.S. branch of an alien assuming
| 7 | | insurer is entered through, a state that employs | 8 | | standards regarding credit for reinsurance | 9 | | substantially similar to those applicable under this | 10 | | Code and the assuming insurer or U.S. branch of an | 11 | | alien assuming insurer: | 12 | | (a) maintains a surplus as regards | 13 | | policyholders in an amount not less than | 14 | | $20,000,000; and | 15 | | (b) submits to the authority of this State to | 16 | | examine its books and records. | 17 | | (2) The requirement of item (a) of subparagraph (1) | 18 | | of paragraph (B-5) of this subsection (1) does not | 19 | | apply to reinsurance ceded and assumed pursuant to | 20 | | pooling arrangements among insurers in the same | 21 | | holding company system.
| 22 | | (C)(1) Credit shall be allowed when the reinsurance is | 23 | | ceded to
an assuming insurer that maintains a trust | 24 | | fund in a qualified United
States financial | 25 | | institution, as defined in paragraph (B) of subsection | 26 | | (3) of this Section subsection 3(B) , for the
payment of |
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| 1 | | the valid claims of its United States policyholders and | 2 | | ceding
insurers, their assigns and successors in | 3 | | interest. The assuming insurer
shall report to the | 4 | | Director information substantially the same as
that | 5 | | required to be reported on the NAIC annual and | 6 | | quarterly financial
statement by authorized
insurers | 7 | | and any other financial information that the
Director | 8 | | deems necessary to determine the financial condition | 9 | | of the
assuming insurer and the sufficiency of the | 10 | | trust
fund. The assuming insurer shall provide or make | 11 | | the information available to the ceding insurer. The | 12 | | assuming insurer may decline to release trade secrets | 13 | | or commercially sensitive information that would | 14 | | qualify as exempt from disclosure under the Freedom of | 15 | | Information Act. The Director shall also make the | 16 | | information publicly available, subject only to such | 17 | | reasonable objections as might be raised to a request | 18 | | pursuant to the Freedom of Information Act, as | 19 | | determined by the Director. The assuming insurer shall | 20 | | submit to examination of its books and records by
the | 21 | | Director and bear the expense of examination.
| 22 | | (2)(a) Credit for reinsurance shall not be granted | 23 | | under this subsection
unless the form of the trust and | 24 | | any amendments to the trust have been approved
by:
| 25 | | (i) the regulatory official of the state where | 26 | | the trust is domiciled;
or
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| 1 | | (ii) the regulatory official of another state | 2 | | who, pursuant to the
terms of the trust instrument, | 3 | | has accepted principal regulatory oversight of
the | 4 | | trust.
| 5 | | (b) The form of the trust and any trust amendments | 6 | | also shall be filed
with the regulatory official of | 7 | | every state in which the ceding insurer
beneficiaries | 8 | | of the trust are domiciled. The trust instrument shall | 9 | | provide
that contested claims shall be valid and | 10 | | enforceable upon the final order of
any court of | 11 | | competent jurisdiction in the United States. The trust | 12 | | shall vest
legal title to its assets in its trustees | 13 | | for the benefit of the assuming
insurer's United States | 14 | | policyholders and ceding insurees and their assigns
| 15 | | and
successors in interest. The trust and the assuming | 16 | | insurer shall be subject to
examination as determined | 17 | | by the Director.
| 18 | | (c) The trust shall remain in effect for as long as | 19 | | the assuming insurer
has outstanding obligations due | 20 | | under the reinsurance agreements subject to the
trust. | 21 | | No later than February 28 of each year the trustee of | 22 | | the trust shall
report to the
Director in writing the | 23 | | balance of the trust and a list of the trust's
| 24 | | investments at the preceding year-end and shall | 25 | | certify the date of termination
of
the trust, if so | 26 | | planned, or certify that the trust will not expire |
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| 1 | | prior to
the next following December 31. | 2 | | Not later than February 28 of each year, the | 3 | | assuming insurer's chief executive officer or chief | 4 | | financial officer shall certify to the Director that | 5 | | the trust fund contains funds in an amount not less | 6 | | than the assuming insurer's liabilities (as reported | 7 | | to the assuming insurer by its cedents) attributable to | 8 | | reinsurance ceded by U.S. ceding insurers, and in | 9 | | addition, a trusteed surplus of not less than | 10 | | $20,000,000. In the event that item (a-5) of | 11 | | subparagraph (3) of this paragraph (C) applies to the | 12 | | trust, the assuming insurer's chief executive officer | 13 | | or chief financial officer shall then certify to the | 14 | | Director that the trust fund contains funds in an | 15 | | amount not less than the assuming insurer's | 16 | | liabilities (as reported to the assuming insurer by its | 17 | | cedents) attributable to reinsurance ceded by U.S. | 18 | | ceding insurers and, in addition, a reduced trusteed | 19 | | surplus of not less than the amount that has been | 20 | | authorized by the regulatory authority having | 21 | | principal regulatory oversight of the trust. | 22 | | (d) No later than February 28 of each year, an | 23 | | assuming insurer that maintains a trust fund in | 24 | | accordance with paragraph (C) of this subsection (1) | 25 | | shall provide or make available, if requested by a | 26 | | beneficiary under the trust fund, the following |
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| 1 | | information to the assuming insurer's U.S. ceding | 2 | | insurers or their assigns and successors in interest: | 3 | | (i) a copy of the form of the trust agreement | 4 | | and any trust amendments to the trust agreement | 5 | | pertaining to the trust fund; | 6 | | (ii) a copy of the annual and quarterly | 7 | | financial information, and its most recent audited | 8 | | financial statement provided to the Director by | 9 | | the assuming insurer, including any exhibits and | 10 | | schedules thereto; | 11 | | (iii) any financial information provided to | 12 | | the Director by the assuming insurer that the | 13 | | Director has deemed necessary to determine the | 14 | | financial condition of the assuming insurer and | 15 | | the sufficiency of the trust fund; | 16 | | (iv) a copy of any annual and quarterly | 17 | | financial information provided to the Director by | 18 | | the trustee of the trust fund maintained by the | 19 | | assuming insurer, including any exhibits and | 20 | | schedules thereto; | 21 | | (v) a copy of the information required to be | 22 | | reported by the trustee of the trust to the | 23 | | Director under the provisions of paragraph (C) of | 24 | | this subsection (1); and | 25 | | (vi) a written certification that the trust | 26 | | fund consists of funds in trust in an amount not |
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| 1 | | less than the assuming insurer's liabilities | 2 | | attributable to reinsurance liabilities (as | 3 | | reported to the assuming insurer by its cedents) | 4 | | attributable to reinsurance ceded by U.S. ceding | 5 | | insurers and, in addition, a trusteed surplus of | 6 | | not less than $20,000.000.
| 7 | | (3) The following requirements apply to the | 8 | | following categories of
assuming insurer:
| 9 | | (a) The trust fund for a single assuming | 10 | | insurer shall consist of
funds
in trust in an | 11 | | amount not less than the assuming insurer's | 12 | | liabilities
attributable to reinsurance ceded by | 13 | | U.S. ceding insurers, and
in
addition, the | 14 | | assuming insurer shall maintain a trusteed surplus | 15 | | of not
less than $20,000,000 , except as provided in | 16 | | item (a-5) of subparagraph (3) of this paragraph | 17 | | (C) . | 18 | | (a-5) At any time after the assuming insurer | 19 | | has permanently discontinued underwriting new | 20 | | business secured by the trust for at least 3 full | 21 | | years, the Director with principal regulatory | 22 | | oversight of the trust may authorize a reduction in | 23 | | the required trusteed surplus, but only after a | 24 | | finding, based on an assessment of the risk, that | 25 | | the new required surplus level is adequate for the | 26 | | protection of U.S. ceding insurers, policyholders, |
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| 1 | | and claimants in light of reasonably foreseeable | 2 | | adverse loss development. The risk
assessment may | 3 | | involve an actuarial review, including an | 4 | | independent analysis of reserves and cash flows, | 5 | | and shall consider all material risk factors, | 6 | | including, when applicable, the lines of business | 7 | | involved, the stability of the incurred loss | 8 | | estimates, and the effect of the surplus | 9 | | requirements on the assuming insurer's liquidity | 10 | | or solvency. The minimum required trusteed surplus | 11 | | may not be reduced to an amount less than 30% of | 12 | | the assuming insurer's liabilities attributable to | 13 | | reinsurance ceded by U.S. ceding
insurers covered | 14 | | by the trust.
| 15 | | (b)(i) In the case of a group including | 16 | | incorporated and
individual unincorporated
| 17 | | underwriters:
| 18 | | (I) for reinsurance ceded under | 19 | | reinsurance agreements with an
inception, | 20 | | amendment, or renewal date on or after January | 21 | | 1, 1993 August 1, 1995 , the trust
shall consist | 22 | | of a trusteed account in an amount not less | 23 | | than the respective underwriters' group's
| 24 | | several liabilities attributable to business | 25 | | ceded by U.S. domiciled ceding
insurers to any | 26 | | member of the group;
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| 1 | | (II) for reinsurance ceded under | 2 | | reinsurance agreements with an
inception date | 3 | | on or before December 31, 1992 July 31, 1995 | 4 | | and not amended or renewed after
that date, | 5 | | notwithstanding the other provisions of this | 6 | | Act, the trust shall
consist of a trusteed | 7 | | account in an amount not less than the group's | 8 | | several
insurance and reinsurance liabilities | 9 | | attributable to business written in the
United | 10 | | States; and
| 11 | | (III) in addition to these trusts, the | 12 | | group shall maintain in trust
a
trusteed | 13 | | surplus of which not less than $100,000,000 | 14 | | shall be held jointly for
the benefit of the | 15 | | U.S. domiciled ceding insurers of any member of | 16 | | the group
for all years of account.
| 17 | | (ii) The incorporated members of the
group | 18 | | shall not be engaged in any business other than | 19 | | underwriting as a member
of the group and shall be | 20 | | subject to the same level of solvency regulation | 21 | | and
control by the group's domiciliary regulator | 22 | | as are the unincorporated
members.
| 23 | | (iii) Within 90 days after its financial | 24 | | statements are due to be
filed
with the group's | 25 | | domiciliary regulator, the group shall provide to | 26 | | the Director
an annual certification by the |
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| 1 | | group's domiciliary regulator of the solvency of
| 2 | | each underwriter member, or if a certification is | 3 | | unavailable, financial
statements prepared by | 4 | | independent public accountants of each underwriter
| 5 | | member of the group.
| 6 | | (c) In the case of a group of incorporated | 7 | | insurers under
common
administration, the group | 8 | | shall:
| 9 | | (i) have continuously transacted an | 10 | | insurance business
outside the United States | 11 | | for at least 3 years immediately before making
| 12 | | application for accreditation;
| 13 | | (ii) maintain aggregate policyholders' | 14 | | surplus of
not less than $10,000,000,000;
| 15 | | (iii) maintain a trust in an amount not
| 16 | | less than
the group's
several liabilities | 17 | | attributable to business ceded by United | 18 | | States
domiciled ceding
insurers to any member | 19 | | of the group pursuant to reinsurance contracts | 20 | | issued in
the name of the group;
| 21 | | (iv) in addition, maintain a joint | 22 | | trusteed
surplus
of which not less than | 23 | | $100,000,000 shall be held jointly for the | 24 | | benefit
of the United
States ceding insurers of | 25 | | any member of the group as additional security | 26 | | for
these liabilities; and
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| 1 | | (v) within 90 days after its financial | 2 | | statements are due to be
filed
with the group's | 3 | | domiciliary regulator,
make available to the | 4 | | Director an annual certification of each | 5 | | underwriter
member's
solvency by the member's | 6 | | domiciliary regulator and financial statements | 7 | | of
each
underwriter member of the group | 8 | | prepared by its independent public
accountant.
| 9 | | (C-5) Credit shall be allowed when the reinsurance is | 10 | | ceded to an assuming insurer that has been certified by the | 11 | | Director as a reinsurer in this State and secures its | 12 | | obligations in accordance with the requirements of this | 13 | | paragraph (C-5). | 14 | | (1) In order to be eligible for certification, the | 15 | | assuming insurer shall meet the following | 16 | | requirements: | 17 | | (a) the assuming insurer must be domiciled and | 18 | | licensed to transact insurance or reinsurance in a | 19 | | qualified jurisdiction, as determined by the | 20 | | Director pursuant to subparagraph (3) of this | 21 | | paragraph (C-5); | 22 | | (b) the assuming insurer must maintain minimum | 23 | | capital and surplus, or its equivalent, in an | 24 | | amount not less than $250,000,000 or such greater | 25 | | amount as determined by the Director pursuant to | 26 | | regulation; |
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| 1 | | (c) the assuming insurer must maintain | 2 | | financial strength ratings from 2 or more rating | 3 | | agencies deemed acceptable by the Director; | 4 | | (d) the assuming insurer must agree to submit | 5 | | to the jurisdiction of this State, appoint the | 6 | | Director as its agent for service of process in | 7 | | this State, and agree to provide security for 100% | 8 | | of the assuming insurer's liabilities attributable | 9 | | to reinsurance ceded by U.S. ceding insurers if it | 10 | | resists enforcement of a final U.S. judgment; and | 11 | | (e) the assuming insurer must agree to meet | 12 | | applicable information filing requirements as | 13 | | determined by the Director, both with respect to an | 14 | | initial application for certification and on an | 15 | | ongoing basis. | 16 | | (2) An association, including incorporated and | 17 | | individual unincorporated underwriters, may be a | 18 | | certified reinsurer. In order to be eligible for | 19 | | certification, in addition to satisfying the | 20 | | requirements of subparagraph (1) of this paragraph | 21 | | (C-5): | 22 | | (a) the association shall satisfy its minimum | 23 | | capital and surplus requirements through the | 24 | | capital and surplus equivalents (net of | 25 | | liabilities) of the association and its members, | 26 | | which shall include a joint central fund that may |
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| 1 | | be applied to any unsatisfied obligation of the | 2 | | association or any of its members, in an amount | 3 | | determined pursuant to the Department's rules to | 4 | | provide adequate protection; | 5 | | (b) the incorporated members of the | 6 | | association shall not be engaged in any business | 7 | | other than underwriting as a member of the | 8 | | association and shall be subject to the same level | 9 | | of regulation and solvency control by the | 10 | | association's domiciliary regulator as are the | 11 | | unincorporated members; and | 12 | | (c) within 90 days after its financial | 13 | | statements are due to be filed with the | 14 | | association's domiciliary regulator, the | 15 | | association shall provide to the Director an | 16 | | annual certification by the association's | 17 | | domiciliary regulator of the solvency of each | 18 | | underwriter member; or if a certification is | 19 | | unavailable, financial statements, prepared by | 20 | | independent public accountants, of each | 21 | | underwriter member of the association. | 22 | | (3) The Director shall create and publish a list of | 23 | | qualified jurisdictions, under which an assuming | 24 | | insurer licensed and domiciled in such jurisdiction
is | 25 | | eligible to be considered for certification by the | 26 | | Director as a certified reinsurer. |
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| 1 | | (a) In order to determine whether the | 2 | | domiciliary jurisdiction of a non-U.S. assuming | 3 | | insurer is eligible to be recognized as a qualified | 4 | | jurisdiction, the Director shall evaluate the | 5 | | appropriateness and effectiveness of the | 6 | | reinsurance supervisory system of the | 7 | | jurisdiction, both initially and on an ongoing | 8 | | basis, and consider the rights, benefits, and | 9 | | extent of reciprocal recognition afforded by
the | 10 | | non-U.S. jurisdiction to reinsurers licensed and | 11 | | domiciled in the U.S. A qualified jurisdiction | 12 | | must agree in writing to share information and | 13 | | cooperate with the Director with respect to all | 14 | | certified reinsurers domiciled within that | 15 | | jurisdiction. A jurisdiction may not be recognized | 16 | | as a qualified jurisdiction if the Director has | 17 | | determined that the jurisdiction does not | 18 | | adequately and promptly enforce final U.S. | 19 | | judgments and arbitration awards. The costs and | 20 | | expenses associated with the Director's review and | 21 | | evaluation of the domiciliary jurisdictions of | 22 | | non-U.S. assuming insurers shall be borne by the | 23 | | certified reinsurer or reinsurers domiciled in | 24 | | such jurisdiction. | 25 | | (b) The Director shall consider the list of | 26 | | qualified jurisdictions through the NAIC committee |
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| 1 | | process in determining qualified jurisdictions. If | 2 | | the Director approves a jurisdiction as qualified | 3 | | that does not appear on the list of qualified | 4 | | jurisdictions, then the Director shall provide | 5 | | thoroughly documented justification in accordance | 6 | | with criteria to be developed under regulations. | 7 | | (c) U.S. jurisdictions that meet the | 8 | | requirement for accreditation under the NAIC | 9 | | financial standards and accreditation program | 10 | | shall be recognized as qualified jurisdictions. | 11 | | (d) If a certified reinsurer's domiciliary | 12 | | jurisdiction ceases to be a qualified | 13 | | jurisdiction, then the Director may suspend the | 14 | | reinsurer's certification indefinitely, in lieu of | 15 | | revocation. | 16 | | (4) If an applicant for certification has been | 17 | | certified as a reinsurer in an NAIC accredited | 18 | | jurisdiction, then the Director may defer to that | 19 | | jurisdiction's certification, and such assuming | 20 | | insurer shall be considered to be a certified reinsurer | 21 | | in this State, but only upon the Director's assignment | 22 | | of an Illinois rating, which shall be made based on the | 23 | | requirements of subparagraph (5) of this paragraph | 24 | | (C-5). | 25 | | (5) The Director shall assign a rating to each | 26 | | certified reinsurer pursuant to rules adopted by the |
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| 1 | | Department. Factors that shall be considered as part of | 2 | | the evaluation process include the following: | 3 | | (a) The certified reinsurer's financial | 4 | | strength rating from an acceptable rating agency. | 5 | | Financial strength ratings shall be classified | 6 | | according to the following ratings categories: | 7 | | (i) Ratings Category "Secure - 1" | 8 | | corresponds to the highest level of rating | 9 | | given by a rating agency, including, but not | 10 | | limited to, A.M. Best Company rating A++; | 11 | | Standard & Poor's rating AAA; Moody's | 12 | | Investors Service Ratings rating Aaa; and | 13 | | Fitch Ratings rating AAA. | 14 | | (ii) Ratings Category "Secure - 2" | 15 | | corresponds to the second-highest level of | 16 | | rating or group of ratings given by a rating | 17 | | agency, including, but not limited to, A.M. | 18 | | Best Company rating A+;
Standard & Poor's | 19 | | rating AA+, AA, or AA-; Moody's Investors | 20 | | Service ratings Aa1, Aa2, or Aa3; and Fitch | 21 | | Ratings ratings AA+, AA, or AA-. | 22 | | (iii) Ratings Category "Secure - 3" | 23 | | corresponds to the third-highest level of | 24 | | rating or group of ratings given by a rating | 25 | | agency, including, but not limited to, A.M. | 26 | | Best Company rating A; Standard & Poor's |
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| 1 | | ratings A+ or A; Moody's Investors Service | 2 | | ratings A1 or A2; and Fitch Ratings ratings A+ | 3 | | or A. | 4 | | (iv) Ratings Category "Secure - 4" | 5 | | corresponds to the fourth-highest level of | 6 | | rating or group of ratings given by a rating | 7 | | agency, including, but not limited to, A.M. | 8 | | Best Company rating A-; Standard & Poor's | 9 | | rating A-; Moody's Investors Service rating | 10 | | A3; and Fitch Ratings rating A-. | 11 | | (v) Ratings Category "Secure - 5" | 12 | | corresponds to the fifth-highest level of | 13 | | rating or group of ratings given by a rating | 14 | | agency, including, but not limited to, A.M. | 15 | | Best Company ratings B++ or B+; Standard & | 16 | | Poor's ratings BBB+, BBB, or BBB-; Moody's | 17 | | Investors Service ratings Baa1, Baa2, or Baa3; | 18 | | and Fitch Ratings ratings BBB+, BBB, or BBB-. | 19 | | (vi) Ratings Category "Vulnerable - 6" | 20 | | corresponds to a level of rating given by a | 21 | | rating agency, other than those described in | 22 | | subitems (i) through (v) of this item (c), | 23 | | including, but not limited to, A.M. Best | 24 | | Company rating B, B-, C++, C+, C, C-, D, E, or | 25 | | F; Standard & Poor's ratings BB+, BB, BB-, B+, | 26 | | B, B-, CCC, CC, C, D, or R; Moody's Investors |
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| 1 | | Service ratings Ba1, Ba2, Ba3, B1, B2, B3, Caa, | 2 | | Ca, or C; and Fitch Ratings ratings BB+, BB, | 3 | | BB-, B+, B, B-, CCC+, CCC, CCC-, or D. | 4 | | A failure to obtain or
maintain at least 2 | 5 | | financial strength
ratings
from acceptable rating | 6 | | agencies shall result
in loss of eligibility for | 7 | | certification. | 8 | | (b) The business practices of the certified | 9 | | reinsurer in dealing with its ceding insurers, | 10 | | including its record of compliance with | 11 | | reinsurance contractual terms and obligations. | 12 | | (c) For certified reinsurers domiciled in the | 13 | | U.S., a review of the most recent applicable NAIC | 14 | | Annual Statement Blank, either Schedule F (for | 15 | | property and casualty reinsurers) or Schedule S | 16 | | (for life and health reinsurers). | 17 | | (d) For certified reinsurers not domiciled in | 18 | | the U.S., a review annually of Form CR-F (for | 19 | | property and casualty reinsurers) or Form CR-S | 20 | | (for life and health reinsurers). | 21 | | (e) The reputation of the certified reinsurer | 22 | | for prompt payment of claims under reinsurance | 23 | | agreements, based on an analysis of ceding | 24 | | insurers' Schedule F reporting of overdue | 25 | | reinsurance recoverables, including the proportion | 26 | | of obligations that are more than 90 days past due |
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| 1 | | or are in dispute, with specific attention given to | 2 | | obligations payable to companies that are in | 3 | | administrative supervision or receivership. | 4 | | (f) Regulatory actions against the certified | 5 | | reinsurer. | 6 | | (g) The report of the independent auditor on | 7 | | the financial statements of the insurance | 8 | | enterprise, on the basis described in item (h) of | 9 | | this subparagraph (5). | 10 | | (h) For certified reinsurers not domiciled in | 11 | | the U.S., audited financial statements (audited | 12 | | Generally Accepted Accounting Principles (U.S. | 13 | | GAAP) basis statement if available, audited | 14 | | International Financial Reporting Standards (IFRS) | 15 | | basis statements are allowed but must include an | 16 | | audited footnote reconciling equity and net income | 17 | | to U.S. GAAP basis or, with the permission of the | 18 | | Director, audited IFRS basis statements with | 19 | | reconciliation to U.S. GAAP basis certified by an | 20 | | officer of the company), regulatory filings, and | 21 | | actuarial opinion (as filed with the non-U.S. | 22 | | jurisdiction supervisor). Upon the initial | 23 | | application for certification, the Director shall | 24 | | consider the audited financial statements filed | 25 | | with its non-U.S. jurisdiction supervisor for the | 26 | | 3 years immediately preceding the date of the |
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| 1 | | initial application for certification. | 2 | | (i) The liquidation priority of obligations to | 3 | | a ceding insurer in the certified reinsurer's | 4 | | domiciliary jurisdiction in the context of an | 5 | | insolvency proceeding. | 6 | | (j) A certified reinsurer's participation in | 7 | | any solvent scheme of arrangement, or similar | 8 | | procedure, that involves U.S. ceding insurers. The | 9 | | Director shall receive prior notice from a | 10 | | certified reinsurer that proposes participation by | 11 | | the certified reinsurer in a solvent scheme of | 12 | | arrangement. | 13 | | The maximum rating that a certified reinsurer may
| 14 | | be assigned shall correspond to its financial
strength | 15 | | rating, which shall be determined
according to | 16 | | subitems (i) through (vi) of item
(a) of this | 17 | | subparagraph (5). The Director shall use the lowest | 18 | | financial
strength rating received from an acceptable | 19 | | rating
agency in establishing the maximum rating of a
| 20 | | certified reinsurer. | 21 | | (6) Based on the analysis conducted under item (e) | 22 | | of subparagraph (5) of this paragraph (C-5) of a | 23 | | certified reinsurer's reputation for prompt payment of | 24 | | claims, the Director may make appropriate adjustments | 25 | | in the security the certified reinsurer is required to | 26 | | post to protect its liabilities to U.S. ceding |
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| 1 | | insurers, provided that the Director shall, at a | 2 | | minimum, increase the security the certified reinsurer | 3 | | is required to post by one rating level under item (a) | 4 | | of subparagraph (8) of this paragraph (C-5) if the | 5 | | Director finds that: | 6 | | (a) more than 15% of the certified reinsurer's | 7 | | ceding insurance clients have overdue reinsurance | 8 | | recoverables on paid losses of 90 days or more that | 9 | | are not in dispute and that exceed $100,000 for | 10 | | each cedent; or | 11 | | (b) the aggregate amount of reinsurance | 12 | | recoverables on paid losses that are not in dispute | 13 | | that are overdue by 90 days or more exceeds | 14 | | $50,000,000. | 15 | | (7) The Director shall publish a list of all | 16 | | certified reinsurers and their ratings. | 17 | | (8) A certified reinsurer shall secure obligations | 18 | | assumed from U.S. ceding insurers under this | 19 | | subsection (1) at a level consistent with its rating. | 20 | | (a) The amount of security required in order | 21 | | for full credit to be allowed shall correspond with | 22 | | the applicable ratings category: | 23 | | Secure - 1: 0%. | 24 | | Secure - 2: 10%. | 25 | | Secure - 3: 20%. | 26 | | Secure - 4: 50%. |
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| 1 | | Secure - 5: 75%. | 2 | | Vulnerable - 6: 100%. | 3 | | (b) Nothing in this subparagraph (8) shall | 4 | | prohibit the parties to a reinsurance agreement | 5 | | from agreeing to provisions establishing security | 6 | | requirements that exceed the minimum security | 7 | | requirements established for certified reinsurers | 8 | | under this Section. | 9 | | (c) In order for a domestic ceding insurer to | 10 | | qualify for full financial statement credit for | 11 | | reinsurance ceded to a certified reinsurer, the | 12 | | certified reinsurer shall maintain security in a | 13 | | form acceptable to the Director and consistent | 14 | | with the provisions of subsection (2) of this | 15 | | Section, or in a multibeneficiary trust in | 16 | | accordance with paragraph (C) of this
subsection | 17 | | (1), except as otherwise provided in this | 18 | | subparagraph (8). | 19 | | (d) If a certified reinsurer maintains a trust | 20 | | to fully secure its obligations subject to | 21 | | paragraph (C) of this subsection (1), and chooses | 22 | | to secure its obligations incurred as a certified | 23 | | reinsurer in the form of a multibeneficiary trust, | 24 | | then the certified reinsurer shall maintain | 25 | | separate trust accounts for its obligations | 26 | | incurred under reinsurance
agreements issued or |
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| 1 | | renewed as a certified reinsurer with reduced | 2 | | security as permitted by this subsection or | 3 | | comparable laws of other U.S. jurisdictions and | 4 | | for its obligations subject to paragraph (C) of | 5 | | this subsection (1). It shall be a condition to the | 6 | | grant of certification under this paragraph (C-5) | 7 | | that the certified reinsurer shall have bound | 8 | | itself, by the language of the trust and agreement | 9 | | with the
Director with principal regulatory | 10 | | oversight of each such trust account, to fund, upon | 11 | | termination of any such trust account, out of the | 12 | | remaining surplus of such trust any deficiency of | 13 | | any other such trust account. The certified | 14 | | reinsurer shall also provide or make available, if | 15 | | requested by a beneficiary under a trust, all the | 16 | | information that is required to be provided under | 17 | | the requirements of item (d) of subparagraph (2) of | 18 | | paragraph (C) of this subsection (1) to the | 19 | | certified reinsurer's U.S. ceding insurers or | 20 | | their assigns and successors in interest. | 21 | | (e) The minimum trusteed surplus requirements | 22 | | provided in paragraph (C) of this subsection (1) | 23 | | are not applicable with respect to a | 24 | | multibeneficiary trust maintained by a certified | 25 | | reinsurer for the purpose of securing obligations | 26 | | incurred under this subsection, except that such |
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| 1 | | trust shall maintain a minimum trusteed surplus of | 2 | | $10,000,000. | 3 | | (f) With respect to obligations incurred by a | 4 | | certified reinsurer under this subsection (1), if | 5 | | the security is insufficient, then the Director | 6 | | may reduce the allowable credit by an amount | 7 | | proportionate to the deficiency and may impose | 8 | | further reductions in allowable credit upon | 9 | | finding that there is a material risk that the | 10 | | certified reinsurer's obligations will not be paid | 11 | | in full when due. | 12 | | (9)(a) In the case of a downgrade by a rating | 13 | | agency or other disqualifying circumstance, the | 14 | | Director shall by written notice assign a new | 15 | | rating to the certified reinsurer in accordance | 16 | | with the requirements of subparagraph (5) of this | 17 | | paragraph (C-5). | 18 | | (b) If the rating of a certified reinsurer is | 19 | | upgraded by the Director, then the certified | 20 | | reinsurer may meet the security requirements | 21 | | applicable to its new rating on a prospective | 22 | | basis, but the Director shall require the | 23 | | certified reinsurer to post security under the | 24 | | previously applicable security requirements as to | 25 | | all contracts in force on or before the effective | 26 | | date of the upgraded rating. If the rating of a |
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| 1 | | certified reinsurer is downgraded by the Director, | 2 | | then the Director shall require the certified | 3 | | reinsurer to meet the security requirements | 4 | | applicable to its new rating for all business it | 5 | | has assumed as a certified reinsurer. | 6 | | (c) The Director may suspend, revoke, or | 7 | | otherwise modify a certified reinsurer's | 8 | | certification at any time if the certified | 9 | | reinsurer fails to meet its obligations or | 10 | | security requirements under this Section or if | 11 | | other financial or operating results of the | 12 | | certified reinsurer, or documented significant | 13 | | delays in payment by the certified reinsurer, lead | 14 | | the Director to reconsider the certified | 15 | | reinsurer's ability or willingness to meet its | 16 | | contractual obligations. In seeking to suspend, | 17 | | revoke, or otherwise modify a certified | 18 | | reinsurer's certification, the Director shall | 19 | | follow the procedures provided in paragraph (G) of | 20 | | this subsection (1). | 21 | | (d) For purposes of this subsection (1), a | 22 | | certified reinsurer whose certification has been | 23 | | terminated for any reason shall be treated as a | 24 | | certified reinsurer required to secure 100% of its | 25 | | obligations. | 26 | | (i) As used in this item (g), the term |
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| 1 | | "terminated" refers to revocation, suspension, | 2 | | voluntary surrender and inactive status. | 3 | | (ii) If the Director continues to assign a | 4 | | higher rating as permitted by other provisions | 5 | | of this Section, then this requirement does not | 6 | | apply to a certified reinsurer in inactive | 7 | | status or to a reinsurer whose certification | 8 | | has been suspended. | 9 | | (e) Upon revocation of the certification of a | 10 | | certified reinsurer by the Director, the assuming | 11 | | insurer shall be required to post security in | 12 | | accordance with subsection (2) of this Section in | 13 | | order for the ceding insurer to continue to take | 14 | | credit for reinsurance ceded to the assuming | 15 | | insurer. If funds continue to be held in trust, | 16 | | then the Director may allow additional credit | 17 | | equal to the ceding insurer's pro rata share of the | 18 | | funds, discounted to reflect the risk of | 19 | | uncollectibility and anticipated expenses of trust | 20 | | administration. | 21 | | (f) Notwithstanding the change of a certified | 22 | | reinsurer's rating or revocation of its | 23 | | certification, a domestic insurer that has ceded | 24 | | reinsurance to that certified reinsurer may not be | 25 | | denied credit for reinsurance for a period of 3 | 26 | | months for all reinsurance ceded to that certified |
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| 1 | | reinsurer, unless the reinsurance is found by the | 2 | | Director to be at high risk of uncollectibility. | 3 | | (10) A certified reinsurer that ceases to assume | 4 | | new business in this State may request to maintain its | 5 | | certification in inactive status in order to continue | 6 | | to qualify for a reduction in security for its in-force | 7 | | business. An inactive certified reinsurer shall | 8 | | continue to comply with all applicable requirements of | 9 | | this subsection (1), and the Director shall assign a | 10 | | rating that takes into account, if relevant, the | 11 | | reasons why the reinsurer is not assuming new business. | 12 | | (11) Credit for reinsurance under this paragraph | 13 | | (C-5)
shall apply only to reinsurance contracts | 14 | | entered
into or renewed on or after the effective date | 15 | | of
the certification of the assuming insurer.
| 16 | | (D) Credit shall be allowed when the reinsurance is | 17 | | ceded to an assuming
insurer not meeting the requirements | 18 | | of paragraph subsection (1) (A), (B), or (C) of this | 19 | | subsection (1)
but only with respect to the insurance of | 20 | | risks located in jurisdictions
where that reinsurance is | 21 | | required by applicable law or regulation of that
| 22 | | jurisdiction.
| 23 | | (E) If the assuming insurer is not licensed to transact | 24 | | insurance in
this State or an accredited or certified | 25 | | reinsurer in this State, the credit permitted
by paragraphs | 26 | | (B-5) and subsection (1) (C) of this subsection (1) shall |
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| 1 | | not be allowed unless the assuming insurer
agrees in the | 2 | | reinsurance agreements:
| 3 | | (1) that in the event of the failure of the | 4 | | assuming insurer to perform
its obligations under the | 5 | | terms of the reinsurance agreement, the assuming
| 6 | | insurer, at the request of the ceding insurer, shall | 7 | | submit to the
jurisdiction of any court of competent | 8 | | jurisdiction in any state of the
United States, will | 9 | | comply with all requirements necessary to give the
| 10 | | court jurisdiction, and will abide by the final | 11 | | decision of the court or of
any appellate court in the | 12 | | event of an appeal; and
| 13 | | (2) to designate the Director or a designated | 14 | | attorney as its true and
lawful attorney upon whom may | 15 | | be served any lawful process in any action,
suit, or | 16 | | proceeding instituted by or on behalf of the ceding | 17 | | company.
| 18 | | This provision is not intended to conflict with or | 19 | | override the
obligation of the parties to a reinsurance | 20 | | agreement to arbitrate their
disputes, if an obligation to | 21 | | arbitrate is created in the agreement.
| 22 | | (F) If the assuming insurer does not meet the | 23 | | requirements of paragraph (A) or (B) of this
subsection (1) | 24 | | (1)(A) or (B) , the credit permitted by paragraph (C) of | 25 | | this subsection (1) (1)(C) shall not
be allowed unless the | 26 | | assuming insurer agrees in the trust agreements to the
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| 1 | | following conditions:
| 2 | | (1) Notwithstanding any other provisions in the | 3 | | trust instrument, if the
trust fund is inadequate | 4 | | because it contains an amount less than the amount
| 5 | | required by subparagraph (3) of paragraph (C) | 6 | | subsection (C)(3) of this subsection (1) Section or if | 7 | | the grantor of the trust
has been declared insolvent or | 8 | | placed into receivership, rehabilitation,
liquidation, | 9 | | or similar proceedings under the laws of its state or | 10 | | country of
domicile, the trustee shall comply with an | 11 | | order of the state official with
regulatory oversight | 12 | | over the trust or with an order of a court of competent
| 13 | | jurisdiction directing the trustee to transfer to the | 14 | | state official with
regulatory oversight all of the | 15 | | assets of the trust fund.
| 16 | | (2) The assets shall be distributed by and claims | 17 | | shall be filed with
and valued by the state official | 18 | | with regulatory oversight in accordance with
the laws | 19 | | of the state in which the trust is domiciled that are | 20 | | applicable to
the liquidation of domestic insurance | 21 | | companies.
| 22 | | (3) If the state official with regulatory | 23 | | oversight determines that the
assets of the trust fund | 24 | | or any part thereof
are not necessary to satisfy the | 25 | | claims of the U.S. ceding insurers of the
grantor of | 26 | | the trust, the assets or part thereof shall be returned |
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| 1 | | by the state
official with regulatory oversight to the | 2 | | trustee for distribution in
accordance with the trust | 3 | | agreement.
| 4 | | (4) The grantor shall waive any rights otherwise | 5 | | available to it under
U.S. law that are inconsistent | 6 | | with the provision.
| 7 | | (G) If an accredited or certified reinsurer ceases to | 8 | | meet the requirements for accreditation or certification, | 9 | | then the Director may suspend or revoke the reinsurer's | 10 | | accreditation or certification. | 11 | | (1) The Director must give the reinsurer notice and | 12 | | opportunity for hearing. The suspension or revocation | 13 | | may not take effect until after the Director's order on | 14 | | hearing, unless: | 15 | | (a) the reinsurer waives its right to hearing; | 16 | | (b) the Director's order is based on | 17 | | regulatory action by the reinsurer's domiciliary | 18 | | jurisdiction or the voluntary surrender or | 19 | | termination of the reinsurer's eligibility to | 20 | | transact insurance or reinsurance business in its | 21 | | domiciliary jurisdiction or in the primary | 22 | | certifying state of the reinsurer under | 23 | | subparagraph (4) of paragraph (C-5) of this | 24 | | subsection (1); or | 25 | | (c) the Director finds that an emergency | 26 | | requires immediate action and a court of competent |
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| 1 | | jurisdiction has not stayed the Director's action. | 2 | | (2) While a reinsurer's accreditation or | 3 | | certification is suspended, no reinsurance
contract | 4 | | issued or renewed after the effective date of the | 5 | | suspension qualifies for credit except to the extent | 6 | | that the reinsurer's obligations under the contract | 7 | | are secured in accordance with subsection (2) of this | 8 | | Section. If a reinsurer's accreditation or | 9 | | certification is revoked, no credit for reinsurance | 10 | | may be granted after the effective date of the | 11 | | revocation, except to the extent that the reinsurer's | 12 | | obligations under the contract are secured in | 13 | | accordance with subsection (2) of this Section. | 14 | | (H) The following provisions shall apply concerning | 15 | | concentration of risk: | 16 | | (1) A ceding insurer shall take steps to manage its | 17 | | reinsurance recoverable proportionate to its own book | 18 | | of business. A domestic ceding insurer shall notify the | 19 | | Director within 30 days after reinsurance recoverables | 20 | | from any single assuming insurer, or group of | 21 | | affiliated assuming insurers, exceeds 50% of the | 22 | | domestic ceding insurer's last reported surplus to | 23 | | policyholders, or after it is determined that | 24 | | reinsurance recoverables from any single assuming | 25 | | insurer, or group of affiliated assuming insurers, is | 26 | | likely to exceed this limit. The notification shall |
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| 1 | | demonstrate that the exposure is safely managed by the | 2 | | domestic ceding insurer. | 3 | | (2) A ceding insurer shall take steps to diversify | 4 | | its reinsurance program. A domestic ceding insurer | 5 | | shall notify the Director within 30 days after ceding | 6 | | to any single assuming insurer, or group of affiliated | 7 | | assuming insurers, more than 20% of the ceding | 8 | | insurer's gross written premium in the prior calendar | 9 | | year, or after it has determined that the reinsurance | 10 | | ceded to any single assuming insurer, or group of | 11 | | affiliated assuming insurers, is likely to exceed this | 12 | | limit. The notification shall demonstrate that the | 13 | | exposure is safely managed by the domestic ceding | 14 | | insurer. | 15 | | (2) Credit for the reinsurance ceded by a
domestic
insurer | 16 | | to an assuming insurer not meeting the requirements of | 17 | | subsection
(1) of this Section shall be allowed in an amount | 18 | | not exceeding the assets or liabilities
carried by
the ceding | 19 | | insurer. The credit shall not exceed the amount of funds held
| 20 | | by or held in trust for the ceding insurer under a reinsurance | 21 | | contract with the assuming insurer
as security for the payment | 22 | | of obligations thereunder, if the security is
held in the | 23 | | United States subject to withdrawal solely by, and under the
| 24 | | exclusive control of, the ceding insurer; or, in the case of a | 25 | | trust, held
in a qualified United States financial institution, | 26 | | as defined in paragraph (B) of
subsection (3) of this Section |
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| 1 | | (3)(B) . This security may be in the form of:
| 2 | | (A) Cash.
| 3 | | (B) Securities listed by the Securities Valuation | 4 | | Office of the National
Association of Insurance | 5 | | Commissioners , including those deemed exempt from filing | 6 | | as defined by the Purposes and Procedures Manual of the | 7 | | Securities Valuation Office that conform to the | 8 | | requirements
of Article VIII of this Code that are not | 9 | | issued by an affiliate of either
the assuming or ceding | 10 | | company.
| 11 | | (C) Clean, irrevocable, unconditional, letters of | 12 | | credit issued or
confirmed by a qualified United States | 13 | | financial institution, as defined in paragraph (A) of
| 14 | | subsection (3) of this Section (3)(A) . The letters of | 15 | | credit shall be effective no
later than December 31 of the | 16 | | year for which filing is being
made, and in the possession | 17 | | of, or in trust for, the ceding company on or
before the | 18 | | filing date of its annual statement. Letters of credit | 19 | | meeting
applicable standards of issuer acceptability as of | 20 | | the dates of their
issuance (or confirmation) shall, | 21 | | notwithstanding the issuing (or
confirming) institution's | 22 | | subsequent failure to meet applicable standards
of issuer | 23 | | acceptability, continue to be acceptable as security until | 24 | | their
expiration, extension, renewal, modification, or | 25 | | amendment, whichever first
occurs. | 26 | | (D) Any other form of security acceptable to the |
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| 1 | | Director.
| 2 | | (3)(A) For purposes of paragraph (C) of subsection (2) of | 3 | | this Section subsection 2(C) , a "qualified United States
| 4 | | financial institution" means an institution that:
| 5 | | (1) is organized or, in the case of a U.S. office | 6 | | of a foreign
banking organization, licensed under the | 7 | | laws of the United States or
any state thereof;
| 8 | | (2) is regulated, supervised, and examined by U.S. | 9 | | federal or state
authorities having regulatory | 10 | | authority over banks and trust companies;
| 11 | | (3) has been designated by either the Director or | 12 | | the Securities
Valuation Office of the
National | 13 | | Association of Insurance Commissioners as meeting such
| 14 | | standards of financial condition and standing as are | 15 | | considered necessary and
appropriate to regulate the | 16 | | quality of financial institutions whose letters of
| 17 | | credit will be acceptable to the Director; and
| 18 | | (4) is not affiliated with the assuming company.
| 19 | | (B) A "qualified United States financial institution" | 20 | | means, for
purposes of those provisions of this law | 21 | | specifying those institutions that
are eligible to act as a | 22 | | fiduciary of a trust, an institution that:
| 23 | | (1) is organized or, in the case of the U.S. branch | 24 | | or agency office of
a foreign banking organization, | 25 | | licensed under the laws of the United States or
any | 26 | | state thereof and has been granted authority to operate |
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| 1 | | with fiduciary
powers;
| 2 | | (2) is regulated, supervised, and examined by | 3 | | federal or state
authorities having regulatory | 4 | | authority over banks and trust companies; and
| 5 | | (3) is not affiliated with the assuming company, | 6 | | however, if the
subject of the reinsurance contract is | 7 | | insurance written pursuant to
Section 155.51 of this | 8 | | Code, the financial institution may be affiliated
with | 9 | | the assuming company with the prior approval of the | 10 | | Director. | 11 | | (C) Except as set forth in subparagraph (11) of | 12 | | paragraph (C-5) of subsection (1) of this Section as to | 13 | | cessions by certified reinsurers, this amendatory Act of | 14 | | the 99th General Assembly shall apply to all cessions after | 15 | | the effective date of this amendatory Act of the 99th | 16 | | General Assembly under reinsurance agreements that have an | 17 | | inception, anniversary, or renewal date not less than 6 | 18 | | months after the effective date of this amendatory Act of | 19 | | the 99th General Assembly.
| 20 | | (D) The Department shall adopt rules implementing the | 21 | | provisions of this Article. | 22 | | (Source: P.A. 90-381, eff. 8-14-97.)
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