Ala. Admin. Code r. 482-1-167-.07 - Requirements Applicable To Covered Policies To Obtain Credit For Reinsurance; Opportunity For Remediation
(1)
Requirements. Subject to the exemptions described in Rule
482-1-167-.04 and the provisions
of paragraph (2) of this rule, credit for reinsurance shall be allowed with
respect to ceded liabilities pertaining to Covered Policies pursuant to any of
Sections 27-SB-4 through 27-5B-14 if, and only if, in addition to all other
requirements imposed by law or regulation, all of the following requirements
are met on a treaty-by-treaty basis:
(a) The
ceding insurer's statutory policy reserves with respect to the Covered Policies
are established in full and in accordance with the applicable requirements of
Chapter 36A of Title 27, beginning with Section
27-36A-1, and related regulations
and actuarial guidelines, and credit claimed for any reinsurance treaty subject
to this chapter does not exceed the proportionate share of those reserves ceded
under the contract.
(b) The ceding
insurer determines the Required Level of Primary Security with respect to each
reinsurance treaty subject to this regulation and provides support for its
calculation as determined to be acceptable to the commissioner.
(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 treaty
within the meaning of Section 27-SB-14, 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 pursuant to
subparagraph (c), are held by or on behalf of the ceding insurer as security
under the reinsurance treaty within the meaning of Section 27-SB-14.
(e) Any trust used to satisfy the
requirements of this rule shall comply with all of the conditions and
qualifications of Rule
482-1-156-.10, except that:
1. Funds consisting of Primary Security or
Other Security held in trust, shall for the purposes identified in paragraph
(2) of Rule
482-1-167-.06, be valued
according to the valuation rules set forth in paragraph (2) of Rule
482-1-167-.06, as
applicable.
2. There are no
affiliate investment limitations with respect to any security held in such
trust if such security is not needed to satisfy the requirements of
subparagraph (c).
3. The
reinsurance treaty must prohibit withdrawals or substitutions of trust assets
that would leave the fair market value of the Primary Security within the trust
(when aggregated with Primary Security outside the trust that is held by or on
behalf of the ceding insurer in the manner required by subparagraph (c) below
102% of the level required by subparagraph (c) at the time of the withdrawal or
substitution.
4. The determination
of reserve credit under paragraph (5) of Rule
482-1-156-.12 shall be determined
according to the valuation rules set forth in paragraph (2) of Rule
482-1-167-.06, as
applicable.
(f) The
reinsurance treaty has been approved by the commissioner.
(2) Requirements at Inception Date and on an
On-going Basis; Remediation.
(a) The
requirements of paragraph (1) must be satisfied as of the date that risks under
Covered Policies are ceded (if such date is on or after the effective date of
this chapter) and on an ongoing basis thereafter. Under no circumstances shall
a ceding insurer take or consent to any action or series of actions that would
result in a deficiency under subparagraphs (c) or (d) of paragraph (1) with
respect to any reinsurance treaty under which Covered Policies have been ceded,
and in the event that a ceding insurer becomes aware at any time that such a
deficiency exists, it shall use its best efforts to arrange for the deficiency
to be eliminated as expeditiously as possible.
(b) Prior to the due date of each Quarterly
or Annual Statement, each life insurance company that has ceded reinsurance
within the scope of Rule
482-1-167-.03 shall perform an
analysis, on a treaty-by-treaty basis, to determine, as to each reinsurance
treaty under which Covered Policies have been ceded, whether as of the end of
the immediately preceding calendar quarter (the valuation date) the
requirements of subparagraphs (c) and (d) of paragraph (1) were satisfied. The
ceding insurer shall establish a liability equal to the excess of the credit
for reinsurance taken over the amount of Primary Security actually held
pursuant to subparagraph (c) of paragraph (1), unless either:
1. The requirements of subparagraphs (c) and
(d) of paragraph (1) were fully satisfied as of the valuation date as to such
reinsurance treaty.
2. 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 and/or Other Security, as the case may be, in such amount and in such
form as would have caused the requirements of subparagraphs (c) and (d) of
paragraph (1) to be fully satisfied as of the valuation date.
(c) Nothing in subparagraph (b)
shall be construed to allow a ceding company to maintain any deficiency under
subparagraphs (c) or (d) of paragraph (1) for any period of time longer than is
reasonably necessary to eliminate it.
Notes
Author: Commissioner of Insurance
Statutory Authority: Code of Ala. 1975, ยงยง 27-2-17, 27-5B-19.
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