West Virginia Code of State Rules
Agency 114 - Insurance Commission
Title 114 - LEGISLATIVE RULE INSURANCE COMMISSIONER
Series 114-40 - Credit For Reinsurance
Section 114-40-10 - Trust Agreements Qualified Under Section 9
Universal Citation: 114 WV Code of State Rules 114-40-10
Current through Register Vol. XLI, No. 38, September 20, 2024
10.1. As used in this section:
10.1.a. "Beneficiary" means the entity for whose
sole benefit the trust has been established and any successor of the beneficiary by
operation of law. If a court of law appoints a successor in interest to the named
beneficiary, then the named beneficiary includes and is limited to the court
appointed domiciliary receiver (including a conservator, rehabilitator or
liquidator).
10.1.b. "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.
10.1.c. "Obligations," as used in subdivision k,
subsection 10.2 of this section means:
10.1.c.1.
Reinsured losses and allocated loss expenses paid by the ceding company, but not
recovered from the assuming insurer; 10.1.c.2. Reserves for reinsured losses
reported and outstanding;
10.1.c.3.
Reserves for reinsured losses incurred but not reported; and
10.1.c.4. Reserves for allocated reinsured loss
expenses and unearned premiums.
10.2. Required conditions.
10.2.a. 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 W. Va. Code §
33-4-15a(d)(2).
10.2.b. The trust agreement shall create a trust
account into which assets shall be deposited.
10.2.c. All assets in the trust account shall be
held by the trustee at the trustee's office in the United States.
10.2.d. The trust agreement shall provide that:
10.2.d.1. The beneficiary has 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;
10.2.d.2. No other statement or document is
required to be presented to withdraw assets, except that the beneficiary may be
required to acknowledge receipt of withdrawn assets;
10.2.d.3. It is not subject to any conditions or
qualifications outside of the trust agreement; and
10.2.d.4. It shall not contain references to any
other agreements or documents except as provided for under subdivisions k and l of
this subsection.
10.2.e. The
trust agreement shall be established for the sole benefit of the
beneficiary.
10.2.f. The trust agreement
shall require the trustee to:
10.2.f.1. Receive
assets and hold all assets in a safe place;
10.2.f.2. Determine that all assets are in a 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;
10.2.f.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;
10.2.f.4. Notify the
grantor and the beneficiary within ten (10) days, of any deposits to or withdrawals
from the trust account;
10.2.f.5. 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 the
assets to the beneficiary; and
10.2.f.6.
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 the asset upon condition that the proceeds are paid into the trust
account.
10.2.g. 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.
10.2.h. The trust agreement shall be made subject
to and governed by the laws of the state in which the trust is domiciled.
10.2.i. 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 has 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.
10.2.j. The trust agreement shall provide that the
trustee is liable for its own negligence, willful misconduct or lack of good faith.
The failure of the trustee to draw against the letter of credit in circumstances
where the draw would be required is considered to be negligence and/or willful
misconduct.
10.2.k. Notwithstanding
other provisions of this rule, 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, a 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:
10.2.k.1. 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;
10.2.k.2. To make payment to the assuming insurer
of any amounts held in the trust account that exceed one hundred and two percent
(102%) of the actual amount required to fund the assuming insurer's obligations
under the specific reinsurance agreement; or
10.2.k.3. 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 the termination date, to withdraw amounts equal
to the obligations and deposit those amounts in a separate account, in the name of
the ceding insurer in any qualified United States financial institution as defined
in W. Va. Code §
33-4-15a(d)(2)
apart from its general assets, in trust for those uses and purposes specified in
paragraphs 1 and 2 of this subdivision as may remain executory after such withdrawal
and for any period after the termination date.
10.2.l. Notwithstanding other provisions of this
rule, when a trust agreement is established to meet the requirements of Section 9 of
this rule 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, a 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:
10.2.l.1. To pay or reimburse
the ceding insurer for:
10.2.l.1.A. 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
10.2.l.1.B. 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;
10.2.l.2. 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
10.2.l.3. 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 discharged 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 paragraphs 1 and 2 of this subdivision
as may remain executory after withdrawal and for any period after the termination
date.
10.2.m. Either the
reinsurance agreement or the trust agreement must 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 Chapter 33 of the West Virginia Code, 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 sickness risks, then the provisions required by this
subdivision must be included in the reinsurance agreement.
10.3. Permitted conditions.
10.3.a. 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 ninety (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.
10.3.b. 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 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.
10.3.c. 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 funds and to accept substitutions
that the trustee determines are at least equal in current fair market value to the
assets withdrawn and that are consistent with the restrictions in paragraph 2,
subdivision a, subsection 10.4 of this section.
10.3.d. 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. The transfer may be conditioned upon the trustee
receiving, prior to or simultaneously, other specified assets.
10.3.e. 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.
10.4. Additional conditions applicable to reinsurance agreements.
10.4.a. A reinsurance agreement may contain
provisions that:
10.4.a.1. 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 the agreement is to
cover;
10.4.a.2. 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;
10.4.a.3.
Require that all settlements of account between the ceding insurer and the assuming
insurer be made in cash or its equivalent; and
10.4.a.4. 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:
10.4.a.4.A. To pay or
reimburse the ceding insurer for:
10.4.a.4.A.1.
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;
10.4.a.4.A.2. 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
10.4.a.4.A.3. Any other
amounts necessary to secure the credit or reduction from liability for reinsurance
taken by the ceding insurer.
10.4.a.4.B. 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.
10.4.b. The
reinsurance agreement may also contain provisions that:
10.4.b.1. 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:
10.4.b.1.A. The assuming insurer shall, at the
time of 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
10.4.b.1.B. After withdrawal and transfer, the
current fair market value of the trust account is no less than one hundred and two
percent (102%) of the required amount.
10.4.b.2. Provide for the return of any amount
withdrawn in excess of the actual amounts required for in paragraph 4, subdivision a
of this subsection, and for interest payments at a rate not in excess of the prime
rate of interest on such amounts;
10.4.b.3. Permit the award by any arbitration
panel or court of competent jurisdiction of:
10.4.b.3.A. Interest at a rate different from that
provided in paragraph 2 of this subdivision,
10.4.b.3.B. Court or arbitration costs,
10.4.b.3.C. Attorney's fees; and
10.4.b.3.D. Any other reasonable
expenses.
10.4.c.
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 the commissioner in compliance with the provisions of this
rule 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 the reduction shall be no
greater than the specific obligations under the reinsurance agreement that the trust
account was established to secure.
10.4.d. Existing agreements. Notwithstanding the
effective date of this rule, any trust agreement or underlying reinsurance agreement
in existence prior to January 1, 2019, will continue to be acceptable until the
expiration or renewal date of the agreement, at which time the agreement will have
to be in full compliance with this rule for the trust agreement to be
acceptable.
10.4.e. The failure of any
trust agreement to specifically identify the beneficiary as defined in subdivision
a, subsection 10.1 of this section shall not be construed to affect any actions or
rights that the commissioner may take or possess pursuant to the provisions of the
laws of this state.
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