§ 27-4.2-1 - Preamble. - Rhode Island Statutes

SECTION 27-4.2-1

   § 27-4.2-1  Preamble. – (a) The Rhode Island department of business regulation, the insurance division,recognizes that licensed insurers routinely enter into reinsurance agreementsthat yield legitimate relief to the ceding insurer from strain to surplus.

   (b) It is improper for a licensed insurer, in the capacity ofceding insurer, to enter into reinsurance agreements for the principal purposeof producing significant surplus aid for the ceding insurer, typically on atemporary basis, while not transferring all of the significant risks inherentin the business being reinsured. In substance or effect, the expected potentialliability to the ceding insurer remains basically unchanged by the reinsurancetransaction, notwithstanding certain risk elements in the reinsuranceagreement, such as catastrophic mortality or extraordinary survival. The termsof agreements referred to in this section and described in § 27-4.2-3would violate:

   (1) Applicable sections of the general laws relating tofinancial statements of insurers, resulting in distorted financial statementswhich do not properly reflect the financial condition of the ceding insurer;

   (2) Applicable sections of the general laws relating toreinsurance reserve credits, resulting in a ceding insurer improperly reducingliabilities or establishing assets for reinsurance ceded; and

   (3) Applicable sections of the general laws relating tocreating a situation that may be hazardous to policyholders and the people ofthis state.