(a) A life or
health insurer subject to
3
AAC 21.600 -
3
AAC 21.695 may not, for reinsurance ceded, reduce a
liability or establish an asset in a statutory financial statement filed with
the division if, by the terms of the reinsurance agreement, any of the
following conditions exist in substance or effect:
(1) a renewal expense allowance provided or
to be provided to the ceding insurer by the reinsurer in any accounting period
is not sufficient to cover the anticipated allocable renewal expenses of the
ceding insurer on the portion of the business reinsured, unless a liability is
established for the present value of the shortfall using assumptions equal to
the applicable statutory reserve basis on the business reinsured; renewal
expenses may include commissions, premium taxes, and direct expenses, including
billing, valuation, claims, and maintenance expected by the company at the time
the business is reinsured;
(2) the
ceding insurer may be deprived of surplus or assets at the reinsurer's option
or automatically upon the occurrence of some event, such as the insolvency of
the ceding insurer, but termination of the reinsurance agreement by the
reinsurer for nonpayment of reinsurance premiums or other amounts due, such as
modified coinsurance reserve adjustments, interest, and adjustments on funds
withheld, and tax reimbursements, may not be considered a deprivation of
surplus or assets;
(3) the ceding
insurer is required to reimburse the reinsurer for negative experience under
the reinsurance agreement, but neither offsetting experience refunds against
current and prior years' losses nor payment by the ceding insurer of an amount
equal to the current and prior years' losses upon voluntary termination of
in-force reinsurance by the ceding insurer will be considered a reimbursement
to the reinsurer for negative experience; voluntary termination does not
include a situation where termination occurs because of an unreasonable
provision that allows the reinsurer to reduce its risk under the agreement; an
example of an unreasonable provision is the right of the reinsurer to increase
to excessive levels reinsurance premiums or risk and expense charges, thereby
forcing the ceding company to prematurely terminate the reinsurance
agreement;
(4) the ceding insurer
shall terminate or automatically recapture all or part of the reinsurance
ceded, at times specified in the agreement;
(5) the reinsurance agreement involves the
possible payment by the ceding insurer to the reinsurer of amounts other than
income realized from the reinsured policies; for example, a ceding company may
not pay reinsurance premiums or other fees or charges to a reinsurer that are
greater than the direct premiums collected by the ceding company;
(6) the reinsurance agreement does not
transfer all of the significant risk inherent in the business being reinsured;
Appendix A of this section identifies the risks that are considered to be
significant for a representative sampling of products or type of business; for
products not specifically included, the risks determined to be significant must
be consistent with Appendix A of this section;
(7) the credit quality, reinvestment, or
disintermediation risk is significant for the business reinsured and the ceding
company does not transfer the underlying assets to the reinsurer or legally
segregate the underlying assets in a trust or escrow account or establish a
mechanism satisfactory to the director that legally segregates by contract the
underlying assets, unless reinsurance is for one of the following classes of
insurance business:
(A) long term care or
long term disability;
(B)
traditional non-par permanent;
(C)
traditional par permanent;
(D)
adjustable premium permanent;
(E)
indeterminate premium permanent; or
(F) universal life fixed premium with no
dump-in premiums allowed;
(8) settlements are made less frequently than
quarterly or payments due from the reinsurer are not made in cash within 90
days of a settlement date;
(9) the
ceding insurer is required to make a representation or warranty not reasonably
related to the insurance being reinsured;
(10) the ceding insurer is required to make a
representation or warranty about the future performance of the insurance being
reinsured; or
(11) the reinsurance
agreement is entered into for the principal purpose of producing significant
surplus aid for the ceding insurer, typically on a temporary basis, while not
transferring all of the significant risks inherent in the insurance being
reinsured and, in substance or effect, the expected potential liability to the
ceding insurer remains basically unchanged.
(b) The formula for determining the reserve
interest rate adjustment on the reserves held by the ceding insurer for a class
of insurance business listed under (a)(7)(A) - (a)(7)(F) of this section must
reflect the ceding insurer's investment earnings and incorporate all realized
or unrealized gains or losses that are reflected in the ceding insurer's
statutory financial statement.
(c)
Notwithstanding (a) or (b) of this section, an insurer subject to
3
AAC 21.600 -
3
AAC 21.695 may, with the prior written approval of the
director, take reserve credit or establish assets that the director determines
are consistent with actuarial interpretations or the law in this state,
including regulations adopted by the director.
a b c d e f* Health insurance - other than long term care
or long term disability + o + o o o Health insurance - long term care or long
term disability + o + + + o Immediate annuities o + o + + o Single premium
deferred annuities o o + + + + Flexible premium deferred annuities o o + + + +
Guaranteed interest contracts o o + + + + Other annuity deposit business o o o
+ + + Single premium whole life o + + + + + Traditional non-par permanent o + +
+ + + Traditional non-par term o + + o o o Traditional par permanent o + + + +
+ Traditional par term o + + o o o Adjustable premium permanent o + + + + +
Indeterminate premium permanent o + + + + + Universal life flexible premium o +
+ + + + Universal life fixed premium o + + + + + Universal life fixed premium
with dump-in premiums allowed o + + + + + KEY TO APPENDIX A *a - morbidity risk
b - mortality risk c - lapse risk that a policy will voluntarily terminate
before the recoupment of astatutory surplus strain experienced at issue of the
policy d - credit quality risk that invested assets supporting the reinsured
business willdecrease in value excluding market value declines due to changes
in interest rate e - reinvestment risk that interest rates will fall and funds
reinvested will earn lessthan expected f - disintermediation risk that interest
rates rise and policy loans and surrendersincrease or maturing contracts do not
renew at anticipated rates of renewal "+" means significant risk, "o" means
insignificant risk
