Current through Register Vol. 46, No. 39, September 25, 2024
(a) The
agreement must be in the form of a trust agreement made and entered into among
the beneficiary, the grantor and a bank. The bank must be either a member of
the Federal Reserve System, or a New York State-chartered bank or trust
company. Such bank shall be designated the trustee and shall not be a parent,
subsidiary or affiliate of the grantor or the beneficiary.
(b) The trust agreement must create a trust
account into which assets shall be deposited.
(c) All assets in the trust account must be
held by the trustee at the trustee's office in the United States, except that a
bank may apply for the superintendent's permission to use a foreign branch
office of such bank as trustee for trust agreements established pursuant to
subdivision (k) of this section. If the superintendent approves the use of such
foreign branch office as trustee, then its use must be approved in writing by
the beneficiary and the trust agreement must provide that the written notice
described in paragraph (d)(1) of this section must also be presentable, as a
matter of legal right, at the trustee's principal office in the United
States.
(d) The trust agreement
must be clean and unconditional, in that:
(1)
the trust agreement must stipulate that 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;
(2) no other statement or
document need be presented in order to withdraw assets, except the beneficiary
may be required to acknowledge receipt of withdrawn assets;
(3) the trust agreement must indicate that it
is not subject to any conditions or qualifications outside of the trust
agreement;
(4) the trust agreement
cannot contain references to any other agreements or documents; and
(5) no reference shall be made to the fact
that these funds may represent reinsurance premiums or that such funds have
been deposited for any specific purpose.
(e) The trust agreement must be established
for the sole use and benefit of the beneficiary.
(f) The trust agreement must provide for the
trustee to:
(1) receive assets and hold all
assets in a safe place;
(2)
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;
(3) 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;
(4) notify the grantor and
the beneficiary, within 10 days, of any deposits to or withdrawals from the
trust account;
(5) upon written
demand of the beneficiary, immediately take any and all steps necessary to
transfer absolutely and unequivocably 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
(6) allow no substitutions or withdrawals of
assets from the trust account, except on written instructions from the
beneficiary. This requirement shall not be deemed to prohibit substitutions
permitted by section
126.4(c) of this
Part.
(g) The trust
agreement must provide that at least 30 days, but not more than 45 days, prior
to termination of the trust account, written notification of termination shall
be delivered by the trustee to the beneficiary.
(h) The trust agreement must be made subject
to and governed by the laws of the State of New York, except that, when the
beneficiary is a licensed foreign insurer, such insurer's state of domicile may
be substituted for New York.
(i)
The trust agreement must prohibit invasion of the trust corpus for the purpose
of paying compensation to, or reimbursing the expenses of, the
trustee.
(j) The trust agreement
must provide that the trustee shall be liable for its own negligence, willful
misconduct or lack of good faith.
(k) Notwithstanding the provisions of
paragraphs (d)(3), (4) and (5) of this section or section
126.5(a)(5) of
this Part, 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, then such trust agreement may provide that the ceding company
shall undertake to use and apply any amounts drawn upon the trust account,
without diminution because of the insolvency of the ceding company or the
reinsurer, for the following purposes:
(1) to
pay or reimburse such ceding company for the reinsurer's share under the
specific reinsurance agreement regarding any losses and allocated loss expenses
paid by the ceding company but not recovered from the reinsurer or for unearned
premiums due to the ceding company, if not otherwise paid by the reinsurer in
accordance with the terms of such agreement;
(2) to make payment to the reinsurer of any
amounts held in the trust account that exceed 102 percent of the actual amount
required to fund the reinsurer's entire "obligations" under the specific
reinsurance agreement; or
(3) where
the ceding company has received notification of termination of the trust
account, and where the reinsurer's entire "obligations" under the specific
reinsurance agreement remain unliquidated and undischarged 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 company,
in any United States bank or trust company, apart from its general assets, in
trust for such uses and purposes specified in paragraphs (1) and (2) of this
subdivision as may remain executory after such withdrawal and for any period
after such termination date. " Obligations" within the meaning of this
subdivision shall include:
(i) losses and
allocated loss expenses paid by the ceding company, but not recovered from the
reinsurer;
(ii) reserves for losses
reported and outstanding;
(iii)
reserves for losses incurred but not reported;
(iv) reserves for allocated loss expenses;
and
(v) reserves for unearned
premiums.
The provisions to be included in the trust agreement
pursuant to this subdivision may, in lieu thereof, be included in the
underlying reinsurance agreement.
