Code of Maine Rules
02 - DEPARTMENT OF PROFESSIONAL AND FINANCIAL REGULATION
031 - BUREAU OF INSURANCE
Chapter 740 - CREDIT FOR REINSURANCE
Section 031-740-15 - Reinsurance contracts - permitted provisions

Universal Citation: 02 ME Code Rules ยง 031-740-15

Current through 2024-38, September 18, 2024

I. A reinsurance agreement, the administration of which employs a trust account subject to Section 12, 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 that specify what the agreement is to cover;

B. Specify trust investment standards in a manner consistent with Subsection 12(L). An investment clause consistent with Subsection 12(L) is mandatory if it is not contained in the trust agreement or if the reinsurance agreement covers life, annuity, or health risks;

C. 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, in order 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;

D. Require that all settlements of account between the ceding insurer and the assuming insurer be made in cash or its equivalent; and

E. 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agree that the assets in the trust account, established pursuant to the provisions of the reinsurance agreement, may be withdrawn at any time by the ceding insurer, notwithstanding any other provisions in the reinsurance agreement, and may further stipulate that the funds withdrawn shall be utilized and applied by the ceding insurer (or its successors in interest by operation of law, including without limitation any liquidator,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), on the basis of the liability of the ceding insurer under the contracts reinsured without diminution because of the insolvency of the ceding insurer or assuming insurer, only for the following purposes:
(1) To reimburse the ceding insurer for the assuming insurer's share of premiums returned to the owners of policies reinsured under the reinsurance agreement because of cancellations of such policies;

(2) To reimburse the ceding insurer for the assuming insurer's share of policy surrenders and benefits or losses paid by the ceding insurer pursuant to the provisions of the policies reinsured under the reinsurance agreement; and

(3) To pay any obligations, consistent with the terms of the reinsurance agreement, which the ceding insurer has reasonably calculated to be due to it. The agreement may contain provisions that also allow the ceding insurer to fund one or more accounts specifically established by the ceding insurer, under standards specified in the agreement, for the payment of certain obligations incurred but not yet due.

F. Give the assuming insurer the right to seek approval from the ceding insurer, which shall not unreasonably or arbitrarily withhold its approval, to withdraw from the trust account all or any part of the trust assets and transfer those assets to the assuming insurer, provided:
(1) The assuming insurer shall, at the time of withdrawal, replace the withdrawn assets with other qualified assets having a current fair market value at least equal to the greater of the market value of the assets withdrawn or the amount necessary to restore the funding of the trust to the required amount, or

(2) After withdrawal and transfer, the current fair market value of qualified assets in the trust account is no less than 102 percent of the required amount.

G. Give the assuming insurer the right to:
(1) The return of any amount withdrawn in excess of the actual amounts required for Paragraphs E(1) or (2) of this part, or in the case of Paragraph E(3), any amounts determined not to be a permitted withdrawal pursuant to a final accounting between the parties to the agreement; and

(2) Interest payments, at a rate not in excess of the prime rate of interest applicable to the period or periods during which the amounts returned pursuant to Paragraph (1) were held.

H. Permit the award by an arbitration panel or any court of competent jurisdiction of:
(1) Interest at a rate different from that provided in Paragraph G(2) of this part;

(2) Court or arbitration costs;

(3) Attorney's fees; and

(4) Other reasonable expenses.

II. A reinsurance agreement in conjunction with which a letter of credit is utilized may contain the following provisions and the provisions shall be applied without diminution in amounts owed because of insolvency on the part of the ceding insurer or assuming insurer:

A. A requirement that the assuming insurer provide letters of credit to the ceding insurer and specify what they are to cover.

B. A stipulation that the assuming insurer and ceding insurer agree that letters of credit provided by the assuming insurer pursuant to the provisions of a reinsurance agreement may be drawn upon at any time, notwithstanding any other provisions in the agreement, but the proceeds shall be applied only to:
(1) Reimburse the ceding insurer for the assuming insurer's share of premiums returned to the owners of policies reinsured under the reinsurance agreement because of cancellation of such policies;

(2) Reimburse the ceding insurer for the assuming insurer's share of policy surrenders and benefits or losses paid by the ceding insurer pursuant to the provisions of the policies reinsured under the reinsurance agreement;

(3) Pay any obligations, consistent with the terms of the reinsurance agreement, which the ceding insurer has reasonably calculated to be due to it or which the assuming insurer has agreed may be funded from proceeds of the letter of credit in advance of their due date; or

(4) Be deposited with a trustee for the purpose of securing the reinsurer's undischarged obligations, if the letter of credit will expire without renewal or be reduced or replaced by a letter of credit for a reduced amount or if the Superintendent will no longer recognize it as qualifying security, provided that:
(a) The amount drawn must be limited to the those obligations of the assuming insurer under the reinsurance agreement that remain unliquidated and undischarged, and that have not been fully secured by replacement security approved by the Superintendent, 10 days before the date that the letter of credit is anticipated to expire, be replaced or reduced in amount, or to lose recognition as qualifying security; and

(b) The terms and conditions under which the funds are held must comply with Section 12, except for the requirement that the assuming insurer be the grantor of the trust.

C. A provision for the return of any amounts drawn on the letters of credit in excess of the actual amounts required under Subsection B of this part, or, in the case of Paragraph B(3), any amounts that are subsequently determined not to be due pursuant to a final account between the parties to the agreement; and

D. Interest payments, at a rate not in excess of the prime rate of interest applicable to the period or periods during which the amounts returned pursuant to Subsection C of this part were held.

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