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§ 442.1. Reinsurance credits

Purdon's Pennsylvania Statutes and Consolidated StatutesTitle 40 P.S. InsuranceEffective: November 3, 2020

Purdon's Pennsylvania Statutes and Consolidated Statutes
Title 40 P.S. Insurance (Refs & Annos)
Chapter 2. Insurance Companies (Refs & Annos)
Article III. General Provisions Relating to Insurance Companies, Associations, and Exchanges (Refs & Annos)
Effective: November 3, 2020
40 P.S. § 442.1
§ 442.1. Reinsurance credits
Currentness
(a) Deleted by 2020, Nov. 3, P.L. 1097, No. 113, § 1, imd. effective.
(a.1) A domestic ceding insurer may take a credit for reinsurance as either an asset or a reduction from liability on account of the reinsurance ceded if it meets the requirements specified in this section.
(a.2) The following types of reinsurance arrangements are permissible:
(1) Reinsurance ceded to an assuming insurer that is licensed to transact insurance or reinsurance in this Commonwealth in accordance with section 319(b).1
(2) Reinsurance ceded to an insurer meeting the conditions specified by the commissioner, in the commissioner's discretion, and included on a list of qualified or certified reinsurers published and periodically reviewed by the commissioner including when the reinsurance is ceded to the following:
(i) An assuming foreign or alien insurer or group of incorporated alien insurers under common administration that has been deemed to be a qualified reinsurer by the commissioner in accordance with the requirements of 31 Pa. Code Ch. 161 (relating to requirements for qualified and certified reinsurers).
(ii) An assuming insurer that has been certified by the commissioner as a reinsurer in this Commonwealth in accordance with the requirements of 31 Pa. Code Ch. 161, except that as of the effective date of this subsection, the following shall apply:
(A) Certified reinsurers not domiciled in the United States must submit the most recent audited financial statements, regulatory filings and actuarial opinions, as filed with the certified reinsurer's supervisor, with a translation into English, but shall not need to submit audited financial statements on a United States generally accepted accounting principles or international financial reporting standards basis.
(B) Upon the initial application for certification pursuant to 31 Pa. Code Ch. 161, the commissioner shall consider audited financial statements for the last two years filed with the certified reinsurer's supervisor.
(3) Reinsurance ceded to an assuming insurer meeting the requirements of section 319.3.2
(4) Reinsurance ceded to an assuming insurer that is domiciled in, or for a United States branch of an alien assuming insurer is entered through, a state that employs standards regarding credit for reinsurance substantially similar to those applicable under the law of this Commonwealth and the assuming insurer or United States branch of an alien assuming insurer meets both of the following:
(i) Maintains a surplus as regards policyholders in an amount not less than twenty million ($20,000,000) dollars, except with regard to reinsurance ceded and assumed pursuant to pooling arrangements among insurers in the same holding company system.
(ii) Submits to the authority of the commissioner to examine its books and records.
(b) A reduction from liability for the reinsurance ceded by a domestic insurer to an assuming insurer not falling within one of the categories specified under subsection (a.2) shall be allowed in an amount not exceeding the liabilities carried by the ceding insurer and such reduction shall be in the amount of funds held by or on behalf of the ceding insurer, including funds held in trust for the ceding insurer, under a reinsurance contract with such assuming insurer as security for the payment of obligations thereunder, if such security is held in the United States subject to withdrawal solely by and under the exclusive control of the ceding insurer or, in the case of a trust, held in a qualified United States financial institution, as defined in subsection (g)(2). This security may be in the form of:
(1) Cash.
(2) Securities listed by a securities valuation office of a national association of insurance commissioners or any successor thereto, including those exempted from filing under the Purposes and Procedures Manual of the Securities Valuation Office of the National Association of Insurance Commissioners, and determined by the commissioner to qualify as admitted assets.
(3)(i) Clean, irrevocable, unconditional and evergreen letters of credit issued or confirmed by a qualified United States financial institution, as defined in subsection (g)(1), effective no later than the thirty-first day of December in respect of the year for which filing is being made and in the possession of the ceding insurer on or before the filing date of its annual statement.
(ii) Letters of credit meeting applicable standards of issuer acceptability as of the dates of their issuance or confirmation shall, notwithstanding the issuing or confirming institution's subsequent failure to meet applicable standards of issuer acceptability, continue to be acceptable as security until their expiration, extension, renewal, modification or amendment, whichever first occurs.
(4) Funds or letters of credit provided by a noninsurer parent corporation of the ceding insurer, in lieu of the funds to be withheld by the ceding insurer under a reinsurance contract with such assuming insurer as security for payment of obligations thereunder, if the following requirements are met:
(i) The funds or letters of credit are held subject to withdrawal by and under the control of the ceding insurer.
(ii) The type, amount and form of the funds or letters of credit receive the prior approval of the Insurance Commissioner.
(5) Any other form of security acceptable to the Insurance Commissioner.
(c) No credit shall be allowed as an admitted asset or as a deduction from liability, to any ceding company for reinsurance unless the reinsurance is payable to such company or its statutory liquidator by the assuming company on the basis of the liability of the ceding company under contract or contracts reinsured without diminution because of insolvency of the ceding company.
(d) No such credit shall be allowed for reinsurance unless the reinsurance agreement provides that payment by the company shall be made directly to the ceding company or to its liquidator, receiver, or statutory successor.
(e) No credit shall be allowed as an admitted asset or as a reduction in liability if the gross reserves established by the ceding insurer do not include provision for the policy benefits against which the ceding insurer is being indemnified by the reinsurer.
(f) The following shall apply:
(1) Notwithstanding the provisions of this section, the Insurance Department may promulgate one or more regulations to limit, prohibit or authorize the credit which a domestic insurer may take as an admitted asset or as a reduction in liability with respect to reinsurance ceded on any financial statements filed with the Insurance Department.
(2) In addition to and notwithstanding the commissioner's regulatory authority under paragraph (1), the commissioner may promulgate regulations as provided under this paragraph.
(i) A regulation promulgated under this paragraph shall only apply to reinsurance relating to the following:
(A) Life insurance policies with guaranteed nonlevel gross premiums or guaranteed nonlevel benefits.
(B) Universal life insurance policies with provisions resulting in the ability of a policyholder to keep a policy in force over a secondary guarantee period.
(C) Variable annuities with guaranteed death or living benefits.
(D) Long-term care insurance policies.
(E) Other life and health insurance and annuity products related to credit for reinsurance.
(ii) A regulation promulgated under this paragraph may apply to treaties entered into after the effective date of this paragraph containing:
(A) policies issued after December 31, 2014;
(B) policies issued prior to January 1, 2015, if risk pertaining to the policies is ceded in connection with the treaty, in whole or in part, after December 31, 2014; or
(C) policies that meet the requirements of both clauses (A) and (B).
(iii) A regulation promulgated under this paragraph may not apply to cessions to an assuming insurer if the assuming insurer meets one of the following:
(A) Meets the requirements under section 319.3.
(B) Is certified in this Commonwealth.
(C) The commissioner has determined that the assuming insurer maintains at least two hundred and fifty million ($250,000,000) dollars in capital and surplus and is either of the following:
(I) licensed in at least 26 states; or
(II) licensed in at least ten states and licensed or accredited in a total of at least 35 states.
(f.1) Credit for reinsurance ceded to a certified reinsurer is allowed only for reinsurance contracts entered into or renewed on or after the effective date of the certification of the assuming insurer by the Insurance Commissioner.
(g)(1) The term “qualified United States financial institution” when used in this section means an institution which meets the following qualifications:
(i) Is organized or, in the case of a United States office of a foreign banking organization, licensed under the laws of the United States or any state thereof.
(ii) Is regulated, supervised and examined by United States Federal or state authorities having regulatory authority over banks and trust companies.
(iii) Has been determined by either the Insurance Commissioner or the Securities Valuation Office of the National Association of Insurance Commissioners or a successor thereto to meet such standards of financial condition and standing as are considered necessary and appropriate to regulate the quality of financial institutions whose letters of credit will be acceptable to the Insurance Commissioner.
(2) The term “qualified United States financial institution” also means, for the purposes of the provisions of this act specifying those institutions that are eligible to act as a fiduciary of a trust, an institution that meets the following qualifications:
(i) Is organized or, in the case of a United States branch or agency office of a foreign banking organization, licensed under the laws of the United States or any state thereof and has been granted authority to operate with fiduciary powers.
(ii) Is regulated, supervised and examined by Federal or state authorities having regulatory authority over banks and trust companies.

Credits

1921, May 17, P.L. 682, § 319.1, added 1975, Dec. 3, P.L. 474, No. 139, § 2, imd. effective. Amended 1992, Dec. 18, P.L. 1519, No. 178, § 4, effective in 120 days; 2012, July 5, P.L. 1111, No. 136, § 1, imd. effective; 2020, Nov. 3, P.L. 1097, No. 113, § 1, imd. effective.

Footnotes

1
40 P.S. § 442.
2
40 P.S. § 442.3.
40 P.S. § 442.1, PA ST 40 P.S. § 442.1
Current through Act 10 of the 2024 Regular Session. Some statute sections may be more current, see credits for details.
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