North Dakota Administrative Code
Title 45 - Insurance, Commissioner of
Article 45-03 - Regulation of Insurance Companies
Chapter 45-03-07.1 - Credit for Reinsurance Model Regulation
Section 45-03-07.1-04 - Credit for reinsurance - Reinsurers maintaining trust funds
Universal Citation: ND Admin Code ยง 45-03-07.1-04
Current through Supplement No. 394, October, 2024
1. Pursuant to subsection 5 of North Dakota Century Code section 26.1-31.2-01, the commissioner shall allow credit for reinsurance ceded by a domestic insurer to an assuming insurer that, as of any date on which statutory financial statement credit for reinsurance is claimed, and thereafter for so long as credit for reinsurance is claimed, maintains a trust fund in an amount prescribed in this section in a qualified United States financial institution as defined in subsection 2 of North Dakota Century Code section 26.1-31.2-03, for the payment of the valid claims of its United States domiciled ceding insurers, their assigns and successors in interest. The assuming insurer shall report annually to the commissioner substantially the same information as that required to be reported on the national association of insurance commissioners annual statement form by licensed insurers, to enable the commissioner to determine the sufficiency of the trust fund.
2. The following requirements apply to the following categories of assuming insurer:
a.
The trust fund for a single assuming insurer must consist of funds in trust in
an amount not less than the assuming insurer's liabilities attributable to
reinsurance ceded by United States domiciled insurers, and in addition, the
assuming insurer shall maintain a trusteed surplus of not less than twenty
million dollars, except as provided in subdivision b.
b. At any time after the assuming insurer has
permanently discontinued underwriting new business secured by the trust for at
least three full years, the commissioner with principal regulatory oversight of
the trust may authorize a reduction in the required trusteed surplus, but only
after a finding, based on an assessment of the risk, that the new required
surplus level is adequate for the protection of United States ceding insurers,
policyholders, and claimants in light of reasonably foreseeable adverse loss
development. The risk assessment may involve an actuarial review, including an
independent analysis of reserves and cash flows, and shall consider all
material risk factors, including when applicable the lines of business
involved, the stability of the incurred loss estimates and the effect of the
surplus requirements on the assuming insurer's liquidity or solvency. The
minimum required trusteed surplus may not be reduced to an amount less than
thirty percent of the assuming insurer's liabilities attributable to
reinsurance ceded by United States ceding insurers covered by the
trust.
c.
(1) The trust fund for a group, including
incorporated and individual unincorporated underwriters, must consist of:
(a) For reinsurance ceded under reinsurance
agreements with an inception, amendment, or renewal date on or after January 1,
1993, funds in trust in an amount not less than the respective underwriters'
several liabilities attributable to business ceded by the United States
domiciled ceding insurers to any underwriter of the group;
(b) For reinsurance ceded under reinsurance
agreements with an inception date on or before December 31, 1992, and not
amended or renewed after that date, notwithstanding the other provisions of
this chapter, funds in trust in an amount not less than the respective
underwriters' several insurance and reinsurance liabilities attributable to
business written in the United States; and
(c) In addition to these trusts, the group
shall maintain a trusteed surplus of which one hundred million dollars must be
held jointly for the benefit of the United States domiciled ceding insurers of
any member of the group for all years of account.
(2) The incorporated members of the group may
not be engaged in any business other than underwriting as a member of the group
and must be subject to the same level of regulation solvency control by the
group's domiciliary regulator as are the unincorporated members. The group
shall, within ninety days after its financial statements are due to be filed
with the group's domiciliary regulator, provide to the commissioner:
(a) An annual certification by the group's
domiciliary regulator of the solvency of each underwriter member of the group;
or
(b) If a certification is
unavailable, a financial statement prepared by independent public accountants,
of each underwriter member of the group.
d.
(1) The
trust fund for a group of incorporated insurers under common administration,
whose members possess aggregate policyholders surplus of ten billion dollars,
calculated and reported in substantially the same manner as prescribed by the
annual statement instructions and accounting practices and procedures manual of
the national association of insurance commissioners, and which has continuously
transacted an insurance business outside the United States for at least three
years immediately prior to making application for accreditation, must:
(a) Consist of funds in trust in an amount
not less than the assuming insurers' several liabilities attributable to
business ceded by United States domiciled ceding insurers to any members of the
group pursuant to reinsurance contracts issued in the name of the
group;
(b) Maintain a joint
trusteed surplus of which one hundred million dollars shall be held jointly for
the benefit of United States domiciled ceding insurers of any member of the
group; and
(c) File a properly
executed form AR-1 as evidence of the submission to this state's authority to
examine the books and records of any of its members and shall certify that any
member examined will bear the expense of any examination.
(2) Within ninety days after the statements
are due to be filed with the group's domiciliary regulator, the group shall
file with the commissioner an annual certification of each underwriter member's
solvency by the members' domiciliary regulators and financial statements,
prepared by independent public accountants, of each underwriter member of the
group.
3.
a. Credit for reinsurance shall not be
granted unless the form of the trust and any amendments to the trust have been
approved by either the commissioner of the state where the trust is domiciled
or the commissioner of another state who, pursuant to the terms of the trust
instrument, has accepted responsibility for regulatory oversight of the trust.
The form of the trust and any trust amendments also shall be filed with the
commissioner of every state in which the ceding insurer beneficiaries of the
trust are domiciled. The trust instrument must provide that:
(1) Contested claims shall be valid and
enforceable out of funds in trust to the extent remaining unsatisfied thirty
days after entry of the final order of any court of competent jurisdiction in
the United States;
(2) Legal title
to the assets of the trust shall be vested in the trustee for the benefit of
the grantor's United States ceding insurers, their assigns and successors in
interest;
(3) The trust shall be
subject to examination as determined by the commissioner;
(4) The trust shall remain in effect for as
long as the assuming insurer, or any member or former member of a group of
insurers, shall have outstanding obligations under reinsurance agreements
subject to the trust; and
(5) No
later than February twenty-eighth of each year, the trustees of the trust shall
report to the commissioner in writing setting forth the balance in the trust
and listing the trust's investments at the preceding yearend, and shall certify
the date of termination of the trust, if so planned, or certify that the trust
shall not expire prior to the following December thirty-first.
b.
(1) Notwithstanding any other provisions in
the trust instrument, if the trust fund is inadequate because it contains an
amount less than the amount required by this subsection or if the grantor of
the trust has been declared insolvent or placed into receivership,
rehabilitation, liquidation, or similar proceedings under the laws of its state
or country of domicile, the trustee shall comply with an order of the
commissioner with regulatory oversight over the trust or with an order of a
court of competent jurisdiction directing the trustee to transfer to the
commissioner with regulatory oversight over the trust or other designated
receiver all of the assets of the trust fund.
(2) The assets shall be distributed by and
claims shall be filed with and valued by the commissioner with regulatory
oversight over the trust in accordance with the laws of the state in which the
trust is domiciled applicable to the liquidation of domestic insurance
companies.
(3) If the commissioner
with regulatory oversight over the trust determines that the assets of the
trust fund or any part thereof are not necessary to satisfy the claims of the
United States beneficiaries of the trust, the commissioner with regulatory
oversight over the trust shall return the assets, or any part thereof, to the
trustee for distribution in accordance with the trust agreement.
(4) The grantor shall waive any right
otherwise available to it under United States law that is inconsistent with
this provision.
4. For purposes of this section, the term "liabilities" means the assuming insurer's gross liabilities attributable to reinsurance ceded by United States domiciled insurers excluding liabilities that are otherwise secured by acceptable means, and includes:
a. For business ceded by domestic insurers
authorized to write accident and health and property and casualty insurance:
(1) Losses and allocated loss expenses paid
by the ceding insurer, recoverable from the assuming insurer;
(2) Reserves for losses reported and
outstanding;
(3) Reserves for
losses incurred but not reported;
(4) Reserves for allocated loss expenses;
and
(5) Unearned
premiums.
b. For business
ceded by domestic insurers authorized to write life, health, and annuity
insurance:
(1) Aggregate reserves for life
policies and contracts net of policy loans and net due and deferred
premiums;
(2) Aggregate reserves
for accident and health policies;
(3) Deposit funds and other liabilities
without life or disability contingencies; and
(4) Liabilities for policy and contract
claims.
5. Assets deposited in trusts established pursuant to North Dakota Century Code section 26.1-31.2-01 and this section 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 financial institution as defined in subsection 1 of North Dakota Century Code section 26.1-31.2-03, clean, irrevocable, unconditional, and "evergreen" letters of credit issued or confirmed by a qualified United States financial institution, as defined in subsection 1 of North Dakota Century Code section 26.1-31.2-03, and investments of the type specified in this subsection, but investments in or issued by an entity controlling, controlled by, or under common control with either the grantor or beneficiary of the trust shall not exceed five percent of total investments. No more than twenty percent of the total of the investments in the trust may be foreign investments authorized under paragraph 5 of subdivision a, subdivision c, paragraph 2 of subdivision f, and subdivision g, and no more than ten percent of the total of the investments in the trust may be securities denominated in foreign currencies. For purposes of applying the preceding sentence, a depository receipt denominated in United States dollars and representing rights conferred by a foreign security shall be classified as a foreign investment denominated in a foreign currency. The assets of a trust established to satisfy the requirements of North Dakota Century Code section 26.1-31.2-01 shall be invested only as follows:
a. Government obligations that are not in
default as to principal or interest, that are valid and legally authorized, and
that are issued, assumed, or guaranteed by:
(1) The United States or by any agency or
instrumentality of the United States;
(2) A state of the United States;
(3) A territory, possession, or other
governmental unit of the United States;
(4) An agency or instrumentality of a
governmental unit referred to in paragraphs 2 and 3 if the obligations shall be
by law, statutory or otherwise, payable, as to both principal and interest,
from taxes levied or by law required to be levied or from adequate special
revenues pledged or otherwise appropriated or by law required to be provided
for making these payments, but shall not be obligations eligible for investment
under this paragraph if payable solely out of special assessments on properties
benefited by local improvements; or
(5) The government of any other country that
is a member of the organization for economic cooperation and development and
whose government obligations are rated A or higher, or the equivalent, by a
rating agency recognized by the securities valuation office of the national
association of insurance commissioners.
b. Obligations that are issued in the United
States, or that are dollar-denominated and issued in a non-United States
market, by a solvent United States institution other than an insurance company
or that are assumed or guaranteed by a solvent United States institution other
than an insurance company and that are not in default as to principal or
interest if the obligations:
(1) Are rated A
or higher or the equivalent by a securities rating agency recognized by the
securities valuation office of the national association of insurance
commissioners, or if not so rated, are similar in structure and other material
respects to other obligations of the same institution that are so
rated;
(2) Are insured by at least
one authorized insurer, other than the investing insurer or a parent,
subsidiary, or affiliate of the investing insurer, licensed to insure
obligations in this state and, after considering the insurance, are rated AAA
or the equivalent by a securities rating agency recognized by the securities
valuation office of the national association of insurance commissioners;
or
(3) Have been designated as
class one or class two by the securities valuation office of the national
association of insurance commissioners.
c. Obligations issued, assumed, or guaranteed
by a solvent non-United States institution chartered in a country that is a
member of the organization for economic cooperation and development or
obligations of United States corporations issued in a non-United States
currency, provided that in either case the obligations are rated A or higher,
or the equivalent, by a rating agency recognized by the securities valuation
office of the national association of insurance commissioners.
d. An investment made pursuant to the
provisions of subdivisions a, b, or c shall be subject to the following
additional limitations:
(1) An investment in
or loan upon the obligations of an institution other than an institution that
issues mortgage-related securities shall not exceed five percent of the assets
of the trust;
(2) An investment in
any one mortgage-related security shall not exceed five percent of the assets
of the trust;
(3) The aggregate
total investment in mortgage-related securities shall not exceed twenty-five
percent of the assets of the trust; and
(4) Preferred or guaranteed shares issued or
guaranteed by a solvent United States institution are permissible investments
if all of the institution's obligations are eligible as investments under
paragraphs 1 and 3 of subdivision b, but shall not exceed two percent of the
assets of the trust.
e.
As used in this section:
(1) "Mortgage-related
security" means an obligation that is rated AA or higher or the equivalent by a
securities rating agency recognized by the securities valuation office of the
national association of insurance commissioners and that either:
(a) Represents ownership of one or more
promissory notes or certificates of interest or participation in the notes,
including any rights designed to assure servicing of, or the receipt or
timeliness of receipt by the holders of the notes, certificates, or
participation of amounts payable under, the notes, certificates, or
participation, that:
[1] Are directly secured
by a first lien on a single parcel of real estate, including stock allocated to
a dwelling unit in a residential cooperative housing corporation, upon which is
located a dwelling or mixed residential and commercial structure, or on a
residential manufactured home as defined in
42
U.S.C. section 5402(6),
whether the manufactured home is considered real or personal property under the
laws of the state in which it is located; and
[2] Were originated by a savings and loan
association, savings bank, commercial bank, credit union, insurance company, or
similar institution that is supervised and examined by a federal or state
housing authority, or by a mortgagee approved by the secretary of housing and
urban development pursuant to
12 U.S.C. sections
1709 and
1715
-b, or, when the notes involve a lien on the manufactured home, by an
institution or by a financial institution approved for insurance by the
secretary of housing and urban development pursuant to
12 U.S.C. section
1703; or
(b) Is secured by one or more promissory
notes or certificates of deposit or participations in the notes, with or
without recourse to the insurer of the notes, and, by its terms, provides for
payments of principal in relation to payments, or reasonable projections of
payments, or notes meeting the requirements of subparagraph a.
(2) "Promissory note", when used
in connection with a manufactured home, shall also include a loan, advance, or
credit sale as evidenced by a retail installment sales contract or other
instrument.
f. Equity
interests.
(1) Investments in common shares or
partnership interests of a solvent United States institution are permissible
if:
(a) Its obligations and preferred shares,
if any, are eligible as investments under this subsection; and
(b) The equity interests of the institution,
except an insurance company, are registered on a national securities exchange
as provided in the Securities Exchange Act of 1934,
15 U.S.C. § 78 a to 78kk or otherwise registered pursuant
to that Act, and if otherwise registered, price quotations for them are
furnished through a nationwide automated quotations system approved by the
financial industry regulatory authority, or successor organization. A trust
shall not invest in equity interests under this paragraph an amount exceeding
one percent of the assets of the trust even though the equity interests are not
so registered and are not issued by an insurance company.
(2) Investments in common shares of a solvent
institution organized under the laws of a country that is a member of the
organization for economic cooperation and development, if:
(a) All its obligations are rated A or
higher, or the equivalent, by a rating agency recognized by the securities
valuation office of the national association of insurance commissioners;
and
(b) The equity interests of the
institution are registered on a securities exchange regulated by the government
of a country that is a member of the organization for economic cooperation and
development.
(3) An
investment in or loan upon any one institution's outstanding equity interests
shall not exceed one percent of the assets of the trust. The cost of an
investment in equity interests made pursuant to this paragraph, when added to
the aggregate cost of other investments in equity interests then held pursuant
to this paragraph, shall not exceed ten percent of the assets in the
trust.
g. Obligations
issued, assumed, or guaranteed by a multinational development bank, provided
the obligations are rated A or higher, or the equivalent, by a rating agency
recognized by the securities valuation office of the national association of
insurance commissioners.
h.
Investment companies.
(1) Securities of an
investment company registered pursuant to the Investment Company Act of 1940,
15 U.S.C. section
80 a, are permissible investments if the
investment company:
(a) Invests at least
ninety percent of its assets in the types of securities that qualify as an
investment under subdivision a, b, or c or invests in securities that are
determined by the commissioner to be substantively similar to the types of
securities set forth in subdivision a, b, or c; or
(b) Invests at least ninety percent of its
assets in the types of equity interests that qualify as an investment under
paragraph 1 of subdivision f.
(2) Investments made by a trust in investment
companies under this paragraph shall not exceed the following limitations:
(a) An investment in an investment company
qualifying under subparagraph a of paragraph 1 shall not exceed ten percent of
the assets in the trust and the aggregate amount of investment in qualifying
investment companies shall not exceed twenty-five percent of the assets in the
trust; and
(b) Investments in an
investment company qualifying under subparagraph b of paragraph 1 shall not
exceed five percent of the assets in the trust and the aggregate amount of
investment in qualifying investment companies shall be included when
calculating the permissible aggregate value of equity interests pursuant to
paragraph 1 of subdivision f.
i. Letters of credit.
(1) In order for a letter of credit to
qualify as an asset of the trust, the trustee must 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.
(2) The trust
agreement shall provide that the trustee shall be 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 in which a draw would be required
shall be deemed to be negligence or willful misconduct.
6. A specific security provided to a ceding insurer by an assuming insurer pursuant to section 45-03-07.1-06 shall be applied, until exhausted, to the payment of liabilities of the assuming insurer to the ceding insurer holding the specific security prior to, and as a condition precedent for, presentation of a claim by the ceding insurer for payment by a trustee of a trust established by the assuming insurer pursuant to this section.
General Authority: NDCC 26.1-31.2-04
Law Implemented: NDCC 26.1-31.2
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