Current through February 24, 2025
(a) A valid trust agreement shall
(1) be entered into between the beneficiary,
the grantor, and a trustee, which shall be a qualified United States financial
institution as defined in
AS
21.12.020(h);
(2) create a trust account into which assets
shall be deposited. All assets in the trust account shall be held by the
trustee at the trustee's office in the United States.
(3) provide that
(A) the beneficiary shall have the right to
withdraw assets from the trust account at any time, without notice to the
grantor, subject only to written notice from the beneficiary to the
trustee;
(B) no other statement or
document is required to be presented to withdraw assets, except that the
beneficiary may be required to acknowledge receipt of withdrawn
assets;
(C) it is not subject to
any conditions or qualifications outside of the trust agreement;
and<
(D) it shall not contain
references to any other agreements or documents except as provided for in (b)
and (c) of this section;
(4) be established for the sole benefit of
the beneficiary.<
(5) require
the trustee to
(A) receive assets and hold
all assets in a safe place;<
(B)
determine that all assets are in such form that the beneficiary, or the trustee
upon direction by the beneficiary, may whenever necessary negotiate any such
assets, without consent or signature from the grantor or any other person or
entity;
(C) furnish to the grantor
and the beneficiary a statement of all assets in the trust account upon its
inception and at intervals no less frequent than the end of each calendar
quarter;
(D) notify the grantor and
the beneficiary within 10 days of any deposits to or withdrawals from the trust
account;
(E) upon written demand of
the beneficiary, immediately take all steps necessary to transfer absolutely
and unequivocally all right, title and interest in the assets held in the trust
account to the beneficiary and deliver physical custody of the assets to the
beneficiary; and
(F) allow no
substitutions or withdrawals of assets from the trust account, except on
written instructions from the beneficiary, except that the trustee may, without
the consent of but with notice to the beneficiary, upon call or maturity of any
trust asset, withdraw such asset upon condition that the proceeds are paid into
the trust account;
(6)
provide that at least 30 days, but not more than forty-five days, prior to
termination of the trust account, written notification of termination shall be
delivered by the trustee to the beneficiary;
(7) be subject to and governed by the laws of
the state in which the trust is domiciled;
(8) prohibit invasion of the trust corpus for
the purpose of paying commission to, or reimbursing the expenses of, the
trustee. In order for a letter of credit to qualify as an asset of the trust,
the trustee shall have the right and the obligation pursuant to the deed of
trust or some other binding agreement, as duly approved by the director, to
immediately draw down the full amount of the letter of credit and hold the
proceeds in trust for the beneficiaries of the trust if the letter of credit
will otherwise expire without being renewed or replaced; and
(9) provide that the trustee is liable for
its negligence, willful misconduct, or lack of good faith; the failure of the
trustee to draw against the letter of credit in circumstances where such draw
would be required shall be deemed to be negligence or willful misconduct.
(b) Notwithstanding
other provisions of this section, when a trust agreement is established in
conjunction with a reinsurance agreement covering risks other than life,
annuities, and accident and health, where it is customary practice to provide a
trust agreement for a specific purpose, the trust agreement may provide that
the ceding insurer shall undertake to use and apply amounts drawn upon the
trust account, without diminution because of the insolvency of the ceding
insurer or the assuming insurer, only for the following purposes
(1) to pay or reimburse the ceding insurer
for the assuming insurer's share under the specific reinsurance agreement
regarding any losses and allocated loss expenses paid by the ceding insurer,
but not recovered from the assuming insurer, or for unearned premiums due to
the ceding insurer if not otherwise paid by the assuming insurer;
(2) to make payment to the assuming insurer
of any amounts held in the trust account that exceed 102 percent of the actual
amount required to fund the assuming insurer's obligations under the specific
reinsurance agreement; or
(3) where
the ceding insurer has received notification of termination of the trust
account and where the assuming insurer's entire obligations under the specific
reinsurance agreement remain unliquidated and undischarged 10 days before the
termination date, to withdraw amounts equal to the obligations and deposit
those amounts in a separate account, in the name of the ceding insurer in any
qualified United States financial institution as defined in
AS
21.12.020(h) apart from its
general assets, in trust for the uses and purposes specified in (b) (1) and (2)
of this section as may remain executory after such withdrawal and for any
period after the termination date.
(c) Notwithstanding other provisions of this
section, when a trust agreement is established to meet the requirements of
3
AAC 21.662 in conjunction with a reinsurance agreement
covering life, annuities, or accident and health risks, where it is customary
to provide a trust agreement for a specific purpose, the trust agreement may
provide that the ceding insurer shall undertake to use and apply amounts drawn
upon the trust account, without diminution because of the insolvency of the
ceding insurer or the assuming insurer, only for the following purposes
(1) to pay or reimburse the ceding insurer
for
(A) the assuming insurer's share under
the specific reinsurance agreement of premiums returned, but not yet recovered
from the assuming insurer, to the owners of policies reinsured under the
reinsurance agreement on account of cancellations of the policies; and
(B) the assuming insurer's share
under the specific reinsurance agreement of surrenders and benefits or losses
paid by the ceding insurer, but not yet recovered from the assuming insurer,
under the terms and provisions of the policies reinsured under the reinsurance
agreement;
(2) to pay to
the assuming insurer amounts held in the trust account in excess of the amount
necessary to secure the credit or reduction from liability for reinsurance
taken by the ceding insurer; or
(3)
where the ceding insurer has received notification of termination of the trust
and where the assuming insurer's entire obligations under the specific
reinsurance agreement remain unliquidated and undischarged 10 days before the
termination date, to withdraw amounts equal to the assuming insurer's share of
liabilities, to the extent that the liabilities have not yet been funded by the
assuming insurer, and deposit those amounts in a separate account, in the name
of the ceding insurer in any qualified United States financial institution
apart from its general assets, in trust for the uses and purposes specified in
(c)(1) and (2) of this section as may remain executory after withdrawal and for
any period after the termination date.
(d) Either the reinsurance agreement or the
trust agreement must stipulate that assets deposited in the trust account shall
be valued according to their current fair market value and shall consist only
of cash in United States dollars, certificates of deposit issued by a United
States bank and payable in United States dollars, and investments permitted by
AS 21 or any combination of the above, provided investments in or issued by an
entity controlling, controlled by, or under common control with either the
grantor or the beneficiary of the trust shall not exceed five percent of total
investments. The agreement may further specify the types of investments to be
deposited. If the reinsurance agreement covers life, annuities or accident and
health risks, then the provisions required by this subsection must be included
in the reinsurance agreement.
(e)
The trust agreement may provide that the trustee may resign upon delivery of a
written notice of resignation, effective not less than 90 days after the
beneficiary and grantor receive the notice and that the trustee may be removed
by the grantor by delivery to the trustee and the beneficiary of a written
notice of removal, effective not less than 90 days after the trustee and the
beneficiary receive the notice, provided that no such resignation or removal
shall be effective until a successor trustee has been duly appointed and
approved by the beneficiary and the grantor and all assets in the trust have
been duly transferred to the new trustee.
(f) The grantor may have the full and
unqualified right to vote any shares of stock in the trust account and to
receive from time to time payments of any dividends or interest upon any shares
of stock or obligations included in the trust account. Any interest or
dividends shall be either forwarded promptly upon receipt to the grantor or
deposited in a separate account established in the grantor's name.
(g) The trustee may be given authority to
invest, and accept substitutions of, any funds in the account, provided that no
investment or substitution is made without prior approval of the beneficiary,
unless the trust agreement specifies categories of investments acceptable to
the beneficiary and authorizes the trustee to invest funds and to accept
substitutions that the trustee determines are at least equal in current fair
market value to the assets withdrawn and that are consistent with the
restrictions in (i)(2) of this section.
(h) The trust agreement may provide that the
beneficiary may at any time designate a party to which all or part of the trust
assets are to be transferred. Transfer may be conditioned upon the trustee
receiving, prior to or simultaneously, other specified assets.
(i) The trust agreement may provide that,
upon termination of the trust account, all assets not previously withdrawn by
the beneficiary shall, with written approval by the beneficiary, be delivered
over to the grantor.
(j) A
reinsurance agreement may contain provisions that
(1) 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 the agreement is to cover;<
(2) require the assuming insurer, prior to
depositing assets with the trustee, to execute assignments or endorsements in
blank, or to transfer legal title to the trustee of all shares, obligations or
any other assets requiring assignments, so that the ceding insurer, or the
trustee upon the direction of the ceding insurer, may whenever necessary
negotiate these assets without consent or signature from the assuming insurer
or any other entity;
(3) require
that all settlements of account between the ceding insurer and the assuming
insurer be made in cash or its equivalent; and
(4) 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 shall be utilized and applied by the ceding insurer
or its successors in interest by operation of law, including without limitation
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
(A) to pay or reimburse the ceding insurer
for
(i) the assuming insurer's share under
the specific reinsurance agreement of premiums returned, but not yet recovered
from the assuming insurer, to the owners of policies reinsured under the
reinsurance agreement because of cancellations of such policies;
(ii) 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;
and
(iii) any other amounts
necessary to secure the credit or reduction from liability for reinsurance
taken by the ceding insurer; or
(B) to make payment to the assuming insurer
of amounts held in the trust account in excess of the amount necessary to
secure the credit or reduction from liability for reinsurance taken by the
ceding insurer,
(k) The reinsurance agreement also may
contain provisions that
(1) give the assuming
insurer the right to seek approval from the ceding insurer, which may not be
unreasonably or arbitrarily withheld, to withdraw from the trust account all or
any part of the trust assets and transfer those assets to the assuming insurer,
provided:
(A) the assuming insurer shall, at
the time of withdrawal, replace the withdrawn assets with other qualified
assets having a current fair 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
(B) after withdrawal and
transfer, the current fair market value of the trust account is no less than
102 percent of the required amount;
(2) provide for the return of any amount
withdrawn in excess of the actual amounts required for (j)(4) of this
subsection, and for interest payments at a rate not in excess of the prime rate
of interest on such amounts; or
(3)
permit the award by any arbitration panel or court of competent jurisdiction
of:
(A) interest at a rate different from
that provided in paragraph (k)(2) of this subsection:
(B) court or arbitration costs;
(D) any other reasonable expenses.
(l) 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 this
department in compliance with the provisions of this regulation when
established on or before the date of filing 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 shall be no greater than the specific obligations under the
reinsurance agreement that the trust account was established to
secure.
(m) A trust agreement or
underlying reinsurance agreement in existence prior to the effective date of
this regulation will continue to be acceptable until 12 months after the
effective date of this regulation, at which time the agreements will have to
fully comply with this regulation for the trust agreement to be acceptable.
(n) The failure of a trust
agreement to specifically identify the beneficiary as defined in (o) of this
section shall not be construed to affect any actions or rights that the
director may take or possess pursuant to the provisions of the laws of this
state.
(o) As used in this section
(1) "beneficiary" means the entity for whose
sole benefit the trust has been established and any successor of the
beneficiary by operation of law; if a court of law appoints a successor in
interest to the named beneficiary, then the named beneficiary includes and is
limited to the court appointed domiciliary receiver including conservator,
rehabtlitator, or liquidator.
(2)
"grantor" means the entity that has established a trust for the sole benefit of
the beneficiary; when established in conjunction with a reinsurance agreement,
the grantor is the unlicensed, unaccredited assuming insurer.
(3) "obligations" as used subsection (b) of
this section means:
(A) reinsured losses and
allocated loss expenses paid by the ceding company, but not recovered from the
assuming insurer;
(B) reserves for
reinsured losses reported and outstanding;
(C) reserves for reinsured losses incurred
but not reported; and
(D) reserves
for allocated reinsured loss expenses and unearned premiums.
Authority:AS
21.06.090
AS 21.09.200
AS 21.09.205
AS
21.12.020
