Connecticut Administrative Code
Title 38a - Insurance Department
88 - Credit for Reinsurance
Section 38a-88-7 - Trust agreements used to qualify for reduction from liability for reinsurance ceded to an unauthorized assuming insurer
Universal Citation: CT Reg of State Agencies 38a-88-7
Current through March 14, 2024
(a) 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, including
without limitation any liquidator, rehabilitator, receiver or conservator. When
established in conjunction with a reinsurance agreement the beneficiary is the
licensed ceding insurer.
(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 in subsection
(b)(11) of this section, means:
(A)
Reinsurance 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.
(b) Required conditions for trust agreements qualified under Section 38a-88-6 of the Regulations of Connecticut State Agencies.
(1) The trust agreement shall be entered into
between the beneficiary, the grantor and a trustee which shall be a qualified
United States financial institution as defined in section
38a-87
of the Connecticut General Statutes.
(2) The trust agreement shall create a trust
account into which assets shall be deposited.
(3) All assets in the trust account shall be
held by the trustee at the trustee's office in the United States.
(4) The trust agreement shall 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 represented in order 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the beneficiary may be required to acknowledge receipt of withdrawn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 under subdivisions (11)
and (12) of this subsection.
(5) The trust agreement shall be established
for the sole benefit of the beneficiary.
(6) The trust agreement shall 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 ten (10) days, of any deposits to or withdrawals from
the trust account;
(E) upon written
demand of the beneficiary, immediately take any and 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 such assets to such 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.
(7) The trust
agreement shall provide that at least thirty (30) days, but not more than
forty-five (45) days, prior to termination of the trust account, written
notification of termination shall be delivered by the trustee to the
beneficiary.
(8) The trust
agreement shall be made subject to and governed by the laws of the state in
which the trust is established.
(9)
The trust agreement shall prohibit invasion of the trust corpus for the purpose
of paying compensation 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 Commissioner) 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.
(10) The trust agreement shall provide that
the trustee shall be liable for damages caused by its own negligence, willful
misconduct or lack of good faith, including the failure of the trustee to draw
against the letter of credit in circumstances where such draw would be
required.
(11) Notwithstanding
other provisions of sections
38a-88-1
to
38a-88-11,
inclusive, of the Regulations of Connecticut State Agencies, 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, for the following
purposes:
(A) 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;
(B) 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
(C) 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 ten (10) days prior to such termination date, to
withdraw amounts equal to such obligations and deposit such amounts in a
separate account, in the name of the ceding insurer in any qualified United
States financial institution as defined in section
38a-87
of the Connecticut General Statutes apart from its general assets, in trust for
such uses and purposes specified in subparagraphs (A) and (B) of this
subdivision, as may remain executory after such withdrawal and for any period
after such termination date.
(12) Notwithstanding other provisions of
sections
38a-88-1
to
38a-88-12,
inclusive, of the Regulations of Connecticut State Agencies, when a trust
agreement is established to meet the requirements of section
38a-88-6
of the Regulations of Connecticut State Agencies 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:
(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 on account of cancellations of the
policies; and
(ii) 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;
(B) 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
(C) 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 ten (10) days prior to 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 subparagraphs
(A) and (B) of this subdivision as may remain executory after withdrawal and
for any period after the termination date.
(13) Either the reinsurance agreement or the
trust agreement shall 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 the provisions of Title 38a of the Connecticut General Statutes,
or any combination thereof, 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 (5%) 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 paragraph shall be included
in the reinsurance agreement.
(c) Permitted conditions for trust agreements qualified under Section 38a-88-6 of the Regulations of Connecticut State Agencies.
(1) The trust agreement may provide that the
trustee may resign upon delivery of a written notice of resignation, effective
not less than ninety (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.
(2) 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 such 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.
(3) The trustee may be given authority to
invest, and accept substitutions of any funds in the account, provided that no
investment or substitution shall be 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 such funds
and to accept such substitutions which the trustee determines are at least
equal in current fair market value to the assets withdrawn and that are
consistent with the restrictions in subsection (b)(13) of this
section.
(4) 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. Such transfer may be
conditioned upon the trustee receiving, prior to or simultaneously, other
specified assets.
(5) 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.
(d) Additional conditions applicable to reinsurance agreements.
(1) A
reinsurance agreement may contain provisions that:
(A) 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 such agreement is to cover;
(B) require the assuming insurer, prior to
depositing assets with the trustee, to execute assignments, endorsements in
blank, or transfer legal title to the trustee of all shares, obligations or any
other assets requiring assignments, in order that the ceding insurer, or the
trustee upon the direction of the ceding insurer, may whenever necessary
negotiate any such assets without consent or signature from the assuming
insurer or any other entity;
(C)
require that all settlements of account between the ceding insurer and the
assuming insurer be made in cash or its equivalent; and
(D) 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:
(i) 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.
(ii) 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.
(2) The reinsurance agreement may also
contain provisions that:
(A) give the assuming
insurer the right to seek approval from the ceding insurer, which shall 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:
(i) the assuming insurer shall, at
the time of such 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
(ii) after such
withdrawal and transfer, the current fair market value of the trust account is
no less than 102 percent of the required amount. The ceding insurer shall not
unreasonably or arbitrarily withhold its approval.
(B) provide for the return of any amount
withdrawn in excess of the actual amounts required for subparagraph (D) of
subdivision (1) of this subsection, and for interest payments at a rate not in
excess of the prime rate of interest on such amounts;
(C) permit the award by any arbitration panel
or court of competent jurisdiction of:
(i)
interest at a rate different from that provided in subparagraph (B) of
subdivision (2) of this subsection;
(ii) court or arbitration costs;
(iii) attorney's fees; and
(iv) any other reasonable expenses.
(3) Financial
reporting. 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
sections
38a-88-1
to
38a-88-12,
inclusive, of the Regulations of Connecticut State Agencies 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.
(4) Existing agreements. Notwithstanding the
effective date of sections
38a-88-1
to
38a-88-12,
inclusive, of the Regulations of Connecticut State Agencies, any trust
agreement or underlying reinsurance agreement in existence prior to July 1,
1991 will continue to be acceptable until June 30, 1992, at which time the
agreements will have to be in full compliance with sections
38a-88-1
to
38a-88-12,
inclusive, of the Regulations of Connecticut State Agencies for the trust
agreement to be acceptable.
(5) The
failure of any trust agreement to specifically identify the beneficiary as
defined in subsection (a) of this section shall not be construed to affect any
actions or rights which the Commissioner may take or possess pursuant to the
provisions of the laws of this state.
Disclaimer: These regulations may not be the most recent version. Connecticut may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.
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