California Code of Regulations
Title 10 - Investment
Chapter 5 - Insurance Commissioner
Subchapter 3 - Insurers
Article 3 - Annual Statements
Premiums in Course of Collection
Section 2303.27 - Term and Universal Life Insurance Reserve Financing, Requirements for Covered Policies to Obtain Credit for Reinsurance; Opportunity for Remediation

1. 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 Article 3a of Chapter 5 of Part 2 of Division 2 of the Insurance Code, commencing at Section 10489.1, and related regulations, in Articles 12.3 and 12.4 of Subchapter 3 of Chapter 5 of Title 10 of the California Code of Regulations, commencing at Sections 2542 and 2544, respectively, and actuarial guidelines in the NAIC Valuation Manual, and credit claimed for any reinsurance treaty subject to Sections 2303.23 through 2303.28 of this article does not exceed the proportionate share of those reserves ceded under the contract; and

2. The ceding insurer determines the Required Level of Primary Security with respect to each reinsurance treaty subject to Sections 2303.23 through 2303.28 of this article and provides support for its calculation as determined to be acceptable to the commissioner; and

3. 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 Code Section 922.5, on a funds withheld, trust, or modified coinsurance basis; and

4. 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 paragraph 3 above, are held by or on behalf of the ceding insurer as security under the reinsurance treaty within the meaning of Code Section 922.5; and

5. Any trust used to satisfy the requirements of this section 2303.27 shall comply with all of the conditions and qualifications of section 2303.7 of this article, except that:

6. The reinsurance treaty has been approved by the commissioner.

1. The requirements of Section 2303.27(a) of this article must be satisfied as of the date that risks under Covered Policies are ceded (if such date is on or after the January 1, 2018 effective date) 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 Section 2303.27(a)3. or 2303.27(a)4. of this article 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.

2. Prior to the due date of each Quarterly or Annual Statement, each life insurance company that has ceded reinsurance within the scope of Section 2303.24 of this article 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 Section 2303.27(a)3. and 2303.27(a)4. of this article 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 Section 2303.27(a)3., unless either:

3. Nothing in Section 2303.27(b)2. of this article shall be construed to allow a ceding company to maintain any deficiency under Section 2303.27(a)3. or 2303.27(a)4. of this article for any period of time longer than is reasonably necessary to eliminate it.