3 Alaska Admin. Code § 21.670

Current through September 25, 2024

Section 3 AAC 21.670 - Conditions permitted for an unauthorized assuming insurer

(a) In addition to meeting the requirements under 3 AAC 21.665, a trust agreement for a trust fund maintained by an unauthorized assuming insurer may provide that

(1) the trustee may resign upon delivery of a written notice of resignation, effective not less than 90 days after the notice is received by the beneficiary and grantor, or the trustee may be removed by the grantor upon delivery of a written notice of removal, effective not less than 90 days after the notice is received by the trustee and the beneficiary, but a resignation or removal under this paragraph may not be effective until a successor trustee has been approved and duly appointed by the beneficiary and the grantor and all assets in the trust fund have been duly transferred to the new trustee;

(2) the beneficiary may at any time designate a party to whom all or part of the trust assets are to be transferred; the transfer may be conditioned upon the trustee receiving, before or simultaneously with the transfer, other specified assets;

(3) before depositing an asset with the trustee, the grantor must execute an assignment or endorsement in blank or transfer legal title to the trustee of each share, obligation, or other asset requiring assignment, so the beneficiary or the trustee, upon the direction of the beneficiary, may negotiate the asset without further consent or signature of the grantor or any other entity;

(4) all assets not previously withdrawn by the beneficiary, upon termination of the trust fund and written approval of the beneficiary, will be delivered to the grantor; and

(5) specific types of investments allowed by law are to be deposited in the trust fund.

(b) If a trust agreement, for a trust fund maintained by an unauthorized assuming insurer, is established in conjunction with a reinsurance agreement that covers risks other than life, annuity, or health, and it is customary to provide a trust agreement for a specific purpose, the trust agreement may provide that a beneficiary must undertake to use and apply amounts drawn upon the trust, without diminution because of insolvency of the beneficiary or the grantor, for the purpose of

(1) payment or reimbursement to the beneficiary for the grantor's share under the reinsurance agreement regarding a loss or allocated loss expense paid by the beneficiary but not recovered from the grantor, or for unearned premium due to the beneficiary if not otherwise paid by the grantor;

(2) payment to the grantor of any amount held in the trust that exceeds 102 percent of the actual amount required to fund the grantor's obligation under the reinsurance agreement; or

(3) withdrawing an amount equal to the obligation and depositing that amount in a separate account in the name of the beneficiary in a qualified United States financial institution in trust for a purpose listed in (1) or (2) of this subsection, if the beneficiary has received notification of termination of the trust fund and if the grantor's obligation under the reinsurance agreement remains unliquidated and undischarged 10 days before the termination date.

(c) If a trust agreement, for a trust fund maintained by an unauthorized assuming insurer, is established in conjunction with a reinsurance agreement that covers life, annuity, or health risks, and it is customary to provide a trust agreement for a specific purpose, the trust agreement may provide that a beneficiary must undertake to use and apply amounts drawn upon the trust fund, without diminution because of insolvency of the beneficiary or the grantor, for the purpose of

(1) payment or reimbursement to the beneficiary for the grantor's share under the reinsurance agreement to policy owners reinsured under the reinsurance agreement on account of cancellations of the policies;

(2) payment or reimbursement of surrenders paid by the beneficiary but not yet recovered from the grantor under the terms and provisions of the policies reinsured under the reinsurance agreement;

(3) payment or reimbursement of benefits or losses paid by the beneficiary but not yet recovered from the grantor under the terms and provisions of the policies reinsured under the reinsurance agreement;

(4) payment to the grantor of amounts held in the trust fund in excess of the amount necessary to secure the credit or reduction from liability for reinsurance taken by the beneficiary; or

(5) withdrawing an amount equal to the unauthorized assuming insurer's share of liabilities to the extent that the liabilities have not yet been paid by the unauthorized assuming insurer and depositing that amount in a separate account in the name of the beneficiary in a qualified United States financial institution in trust for a purpose listed in (1) or (2) of this subsection, if the beneficiary has received notification of termination of the trust fund and if the grantor's obligation under the reinsurance agreement remains unliquidated and undischarged 10 days before the termination date.

(d) A reinsurance agreement between a ceding insurer and an unauthorized assuming insurer may provide that

(1) the unauthorized assuming insurer enter into a trust agreement, establishing a trust fund for the benefit of the ceding insurer and specifying what the trust agreement is to cover;

(2) the assets deposited in a trust fund must be valued according to their current fair market value and may only consist of cash in United States dollars, certificates of deposit issued by a United States bank and payable in United States dollars, investments permitted by AS 21.21.020, or any combination of these; but investments in or issued by an entity controlling, controlled by, or under common control with either the grantor or the beneficiary of the trust may not exceed five percent of the total investments;

(3) specific types of investments are to be deposited in the trust fund;

(4) before depositing an asset with the trustee, the grantor must execute an assignment or endorsement in blank or transfer legal title to the trustee of each share, obligation, or other asset requiring assignment, so the beneficiary or the trustee, upon the direction of the beneficiary, may negotiate the asset without further consent or signature of the grantor or any other entity;

(5) all settlements of accounts between the ceding insurer and the unauthorized assuming insurer must be made in cash or cash equivalent;

(6) the grantor and the beneficiary agree that the assets in the trust fund established by the provisions of the reinsurance agreement may be withdrawn by the beneficiary at any time, and must be used and applied by the beneficiary or its successors in interest by operation of law, including any liquidator, rehabilitator, receiver, or conservator, without diminution because of insolvency on the part of the beneficiary or the grantor, only for

(A) reimbursing the beneficiary for the grantor's share of premiums returned because of cancellations to the owners of policies reinsured under the reinsurance agreement;

(B) reimbursing the beneficiary for the grantor's share of surrenders paid by the beneficiary under the terms and provisions of the policies reinsured under the reinsurance agreement;

(C) reimbursing the beneficiary for the grantor's share of benefits or losses paid by the beneficiary under the terms and provisions of the policies reinsured under the reinsurance agreement;

(D) payment of any other amounts necessary to secure the credit or reduction of liability for reinsurance taken by the ceding insurer; or

(E) payment to the grantor of amounts held in trust fund in excess of the amount necessary to secure the credit or reduction of liability for credit taken by the ceding insurer;

(7) the unauthorized assuming insurer has the right to seek approval from the ceding insurer, which the ceding insurer may not unreasonably withhold, to withdraw any part or all of the trust assets and transfer those assets to the unauthorized assuming insurer, if

(A) the unauthorized assuming insurer, at the time of the withdrawal, replaces the withdrawn assets with other qualified assets having a market value equal to the market value of the assets withdrawn in order to maintain at all times the deposit in the required amount; or

(B) after withdrawal and transfer, the market value of the trust fund is not less than 102 percent of the required amount;

(8) any amount withdrawn in excess of the actual amounts required by (6) of this subsection is returned to the trust fund, and that interest payments are made to the trust fund at a rate not to exceed the prime rate of interest on the excess amounts held under (6) of this subsection; or

(9) to the extent allowable by law, an award by an arbitration panel or court of competent jurisdiction of any or all of the following is permitted:

(A) interest at a rate different from the prime rate of interest;

(B) court or arbitration costs;

(C) attorney's fees;

(D) other reasonable expenses.

(e) If a trust agreement is entered into in conjunction with a reinsurance agreement covering risks other than life, annuity, or health, the ceding insurer and unauthorized assuming insurer may include the provisions set out in (d)(1), (2), and (3) of this section in the trust agreement instead of including them in the reinsurance agreement.

(f) The grantor may have the full and unqualified right to vote any shares of stock in the trust fund and to promptly receive, in a manner determined by the grantor, payment of interest or dividends upon any shares of stock or obligations included in the trust. Upon receipt of any interest or dividends, the trustee shall promptly either forward the interest or dividend payments to the grantor or deposit them in a separate account established in the grantor's name.

(g) The trustee may be given authority to invest trust money or accept substitutions for any of the trust assets if the trust agreement specifies categories of investments acceptable to the beneficiary and authorizes the trustee to invest trust money and to accept substitutions that the trustee determines are at least equal in market value to the assets withdrawn and are consistent with the restrictions under 3 AAC 21.665(a) (12).

3 AAC 21.670

Eff. 11/25/94, Register 132; am 11/21/2004, Register 172

Authority:AS 21.06.090

AS 21.12.020