West Virginia Code of State Rules
Agency 114 - Insurance Commission
Title 114 - LEGISLATIVE RULE INSURANCE COMMISSIONER
Series 114-40 - Credit For Reinsurance
Section 114-40-5 - Reinsurers Maintaining Trust Funds
Universal Citation: 114 WV Code of State Rules 114-40-5
Current through Register Vol. XLI, No. 38, September 20, 2024
5.1. Pursuant to W. Va. Code § 33-4-15a(b)(2)(D), the commissioner shall allow credit for reinsurance ceded by a domestic insurer to an assuming insurer which, 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 W. Va. Code § 33-4-15a(d)(2), 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.
5.2. The following requirements apply to the following categories of assuming insurer:
5.2.a. The trust fund for a single assuming
insurer shall 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 $20,000,000, except as provided in subdivision b of this
subsection;
5.2.b. At any time after the
assuming insurer has permanently discontinued underwriting new business secured by
the trust for a least three full years, the commissioner with principal regulatory
oversight of the trust may authorize at 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 (30%) of the
assuming insurer's liabilities attributable to reinsurance ceded by United States
ceding insurers covered by the trust.
5.2.c.
5.2.c.1.
The trust fund for a group, including incorporated and individual unincorporated
underwriters, shall consist of:
5.2.c.1.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
United States domiciled ceding insurers to any underwriter of the group;
5.2.c.1.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 rule, 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
5.2.c.1.C. In addition to these
trusts, the group shall maintain a trusteed surplus of which $100,000,000 shall be
held jointly for the benefit of the United States domiciled ceding insurers of any
member of the group for all the years of account.
5.2.c.2. The incorporated members of the group
shall not be engaged in any business other than underwriting as a member of the
group and shall be subject to the same level of regulation and solvency control by
the group's domiciliary regulator as are the unincorporated members. The group
shall, within ninety (90) days after its financial statements are due to be filed
with the group's domiciliary regulator, provide to the commissioner:
5.2.c.2.A. An annual certification by the group's
domiciliary regulator of the solvency of each underwriter member of the group;
or
5.2.c.2.B. If a certification is
unavailable, a financial statement, prepared by independent public accountants, of
each underwriter member of the group.
5.2.d.
5.2.d.1.
The trust fund for a group of incorporated insurers under common administration,
whose members possess aggregate policyholders surplus of $10,000,000,000 (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 (3) years
immediately prior to making application for accreditation, shall:
5.2.d.1.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 such group;
5.2.d.1.B. Maintain a joint trusteed surplus of
which $100,000,000 shall be held jointly for the benefit of United States domiciled
ceding insurers of any member of the group; and
5.2.d.1.C. File a properly executed Form AR-1, as
adopted by the National Association of Insurance Commissioners, with the
commissioner as evidence of the submission to this state's authority to examine the
books and records, pursuant to W. Va. Code §
33-2-9,
of any of its members and shall certify that any member examined shall bear the
expense of the examination.
5.2.d.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 member's domiciliary regulators, and financial statements, prepared by
independent public accountants, of each underwriter member of the
group.
5.3.
5.3.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 shall provide that:
5.3.a.1.
Contested claims are valid and enforceable out of funds in trust to the extent
remaining unsatisfied thirty (30) days after entry of the final order of any court
of competent jurisdiction in the United States;
5.3.a.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;
5.3.a.3. The trust is subject to examination as
determined by the commissioner;
5.3.a.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, has outstanding obligations under
reinsurance agreements subject to the trust; and
5.3.a.5. No later than February 28 of each year
the trustee 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
year-end, 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
31.
5.3.b. 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 section 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 country or
state 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.
5.3.c. 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.
5.3.d. 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.
5.3.e. The grantor shall waive any right otherwise
available to it under United States law that is inconsistent with this
subsection.
5.4. 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:
5.4.a. For business ceded by domestic insurers
authorized to write accident and sickness, and property and casualty insurance:
5.4.a.1. Losses and allocated loss expenses paid
by the ceding insurer, recoverable from the assuming insurer;
5.4.a.2. Reserves for losses reported and
outstanding;
5.4.a.3. Reserves for
losses incurred but not reported;
5.4.a.4. Reserves for allocated loss expenses;
and
5.4.a.5. Unearned
premiums.
5.4.b. For business
ceded by domestic insurers authorized to write life, accident and sickness and
annuity insurance:
5.4.b.1. Aggregate reserves for
life policies and contracts net of policy loans and net due and deferred
premiums;
5.4.b.2. Aggregate reserves
for accident and sickness policies;
5.4.b.3. Deposit funds and other liabilities
without life or disability contingencies; and
5.4.b.4. Liabilities for policy and contract
claims.
5.5. Assets deposited in trusts established pursuant to W. Va. Code § 33-4-15a(b) 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 W. Va. Code § 33-4-15a(d)(1); clean, irrevocable, unconditional and "evergreen" letters of credit issued or confirmed by a qualified United States financial institution, as defined in W. Va. Code § 33-4-15a(d)(1); and investments of the type specified in this subsection. However, 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 (5%) of total investments. No more than twenty percent (20%) 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; or subdivision g of this subsection, and no more than ten percent (10%) 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 W. Va. Code § 33-4-15a(b) shall be invested only as follows:
5.5.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:
5.5.a.1. The United States or by any agency or
instrumentality of the United States;
5.5.a.2. A state of the United States;
5.5.a.3. A territory, possession or other
governmental unit of the United States;
5.5.a.4. An agency or instrumentality of a
governmental unit referred to in paragraphs 2 and 3 of this subdivision if the
obligations are 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 subdivision if payable solely out of special assessments on properties
benefitted by local improvements; or
5.5.a.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;
5.5.b. Obligations that are issued in the United
States, or that are dollar denominated and issued in a non-U.S. 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:
5.5.b.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;
5.5.b.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
5.5.b.3. Have been designated as Class One or
Class Two by the Securities Valuation Office of the National Association of
Insurance Commissioners;
5.5.c. Obligations issued, assumed or guaranteed
by a solvent non-U.S. institution chartered in a country that is a member of the
Organization for Economic Cooperation and Development or obligations of U.S.
corporations issued in a non-U.S. 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;
5.5.d. An investment made
pursuant to the provisions of subdivisions a, b, or c of this subsection is subject
to the following additional limitations:
5.5.d.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
(5%) of the assets of the trust;
5.5.d.2. An investment in any one mortgage-related
security shall not exceed five percent (5%) of the assets of the trust;
5.5.d.3. The aggregate total investment in
mortgage-related securities shall not exceed twenty-five percent (25%) of the assets
of the trust; and
5.5.d.4. Preferred or
guaranteed shares issued or guaranteed by a solvent U.S. institution are permissible
investments if all of the institution's obligations are eligible as investments
under paragraphs 1 and 3, subdivision b of this subsection, but shall not exceed two
percent (2%) of the assets of the trust.
5.5.e. As used in this rule:
5.5.e.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:
5.5.e.1.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:
5.5.e.1.A.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.A. 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
5.5.e.1.A.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
1715b, or, where
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
5.5.e.1.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 parts 1 and 2, subparagraph A of this
paragraph;
5.5.e.2.
"Promissory note," when used in connection with a manufactured home, also includes a
loan, advance or credit sale as evidenced by a retail installment sales contract or
other instrument.
5.5.f. The
following apply to equity interests:
5.5.f.1.
Investments in common shares or partnership interests of a solvent U.S. institution
are permissible if:
5.5.f.1.A. Its obligations and
preferred shares, if any, are eligible as investments under this subsection;
and
5.5.f.1.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.
§§
78a 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 may not invest in equity interests under this paragraph an amount exceeding
one percent (1%) of the assets of the trust even though the equity interests are not
so registered and are not issued by an insurance company;
5.5.f.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 are permissible if:
5.5.f.2.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
5.5.f.2.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;
5.5.f.3. An
investment in or loan upon any one institution's outstanding equity interests shall
not exceed one percent (1%) 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 (10%) of the assets in the trust;
5.5.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.
5.5.h. The following apply to investment
companies:
5.5.h.1. Securities of an investment
company registered pursuant to the Investment Company Act of 1940, 15 U.S.C. §
80a, are permissible investments if the investment company:
5.5.h.1.A. Invests at least ninety percent (90%)
of its assets in the types of securities that qualify as an investment under
subdivisions a, b, or c of this subsection or invests in securities that are
determined by the commissioner to be substantively similar to the types of
securities set forth in subdivisions a, b, or c of this subsection; or
5.5.h.1.B. Invests at least ninety percent (90%)
of its assets in the types of equity interests that qualify as an investment under
paragraph 1, subdivision f of this subsection;
5.5.h.2. Investments made by a trust in investment
companies under this paragraph shall not exceed the following limitations:
5.5.h.2.A. An investment in an investment company
qualifying under subparagraph A, paragraph 1 of this subdivision shall not exceed
ten percent (10%) of the assets in the trust and the aggregate amount of investment
in qualifying investment companies shall not exceed twenty-five percent (25%) of the
assets in the trust; and
5.5.h.2.B.
Investments in an investment company qualifying under subparagraph B, paragraph 1 of
this subdivision shall not exceed five percent (5%) 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, subdivision f of this subsection.
5.5.i. The following apply to
letters of credit:
5.5.i.1. 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.
5.5.i.2. The trust agreement
shall provide that the trustee is 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 where the draw would be required is considered to be negligence
and/or willful misconduct.
5.5.j. A specific security provided to a ceding
insurer by an assuming insurer pursuant to section 9 of this rule 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.
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