56-2-208 - Credit for reinsurance Reduction from liability for reinsurance. - Tennessee Statutes

56-2-208. Credit for reinsurance Reduction from liability for reinsurance.

Credit for reinsurance shall be allowed a domestic ceding insurer as either an asset or a deduction from liability on account of reinsurance ceded only when the reinsurer meets the requirements of subdivision (1), (2), (3), (4) or (5). If an insurer is meeting the requirements of subdivision (3) or (4), the requirements of subdivision (6) must also be met.

     (1)  Credit shall be allowed when the reinsurance is ceded to an assuming insurer that is licensed to transact insurance or reinsurance in this state;

     (2)  Credit shall be allowed when the reinsurance is ceded to an assuming insurer that is accredited as a reinsurer in this state. An accredited reinsurer is one that:

          (A)  Files with the commissioner evidence of its submission to this state's jurisdiction;

          (B)  Submits to this state's authority to examine its books and records;

          (C)  Is licensed to transact insurance or reinsurance in at least one (1) state, or in the case of a United States branch of an alien assuming insurer is entered through and licensed to transact insurance or reinsurance in at least one (1) state;

          (D)  Files annually with the commissioner a copy of its annual statement filed with the insurance department of its state of domicile and a copy of its most recent audited financial statement; and either:

                (i)  Maintains a surplus as regards policyholders in an amount that is not less than twenty million dollars ($20,000,000) and whose accreditation has not been denied by the commissioner within ninety (90) days of its submission; or

                (ii)  Maintains a surplus as regards policyholders in an amount that is not less than twenty million dollars ($20,000,000) and whose accreditation has been approved by the commissioner;

          (E)  No credit shall be allowed a domestic ceding insurer if the assuming insurer's accreditation has been revoked by the commissioner after notice and hearing;

     (3)  (A)  Credit shall be allowed when the reinsurance is ceded to an assuming insurer that is domiciled and licensed in, or in the case of 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 this title, and the assuming insurer or United States branch of an alien assuming insurer:

                (i)  Maintains a surplus as regards policyholders in an amount of not less than twenty million dollars ($20,000,000); and

                (ii)  Submits to the authority of this state to examine its books and records;

          (B)  Provided, that the requirement of subdivision (3)(A)(i) does not apply to reinsurance ceded and assumed pursuant to pooling arrangements among insurers in the same holding company system;

     (4)  (A)  Credit shall be allowed when the reinsurance is ceded to an assuming insurer that maintains a trust fund in a qualified United States financial institution, as defined in § 56-2-209(d), for the payment of the valid claims of its United States policyholders and ceding insurers, their assigns and successors in interest. The assuming insurer shall report annually to the commissioner information substantially the same as that required to be reported on the National Association of Insurance Commissioners (NAIC) annual statement form by licensed insurers to enable the commissioner to determine the sufficiency of the trust fund. In the case of a single assuming insurer, the trust shall consist of a trustee account representing the assuming insurer's liabilities attributable to business written in the United States and, in addition, the assuming insurer shall maintain a trusteed surplus of not less than twenty million dollars ($20,000,000). In the case of a group including incorporated and individual unincorporated underwriters, the trust shall consist of a trusteed account representing the group's liabilities attributable to business written in the United States and, in addition, the group shall maintain a trusteed surplus of which one hundred million dollars ($100,000,000) shall be held jointly for the benefit of United States ceding insurers of any member of the group; 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 solvency regulation and control by the group's domiciliary regulator as are the unincorporated members; and the group shall make available to the commissioner an annual certification of the solvency of each underwriter by the group's domiciliary regulator and its independent public accountants;

          (B)  In the case of a group of incorporated insurers under common administration which complies with the filing requirements contained in subdivision (4)(A), and that has continuously transacted an insurance business outside the United States for at least three (3) years immediately prior to making application for accreditation, and submits to this state's authority to examine its books and records and bears the expense of the examination, and that has an aggregate policyholders surplus of ten billion dollars ($10,000,000,000), the trust shall be in an amount equal to the group's several liabilities attributable to business ceded by United States ceding insurers to any member of the group pursuant to reinsurance contracts issued in the name of the group; plus the group shall maintain a joint trusteed surplus of which one hundred million dollars ($100,000,000) shall be held jointly and exclusively for the benefit of United States ceding insurers of any member of the group as additional security for the liabilities, and each member of the group shall make available to the commissioner an annual certification of the member's solvency by the member's domiciliary regulator and its independent public accountant;

          (C)  The trust shall be established in a form approved by the commissioner. The trust instrument shall provide that contested claims shall be valid and enforceable upon the final order of any court of competent jurisdiction in the United States. The trust shall vest legal title to its assets in the trustees of the trust for its United States policyholders and ceding insurers, their assigns and successors in interest. The trust and the assuming insurer shall be subject to examination as determined by the commissioner. The trust described in this subdivision (4) must remain in effect for as long as the assuming insurer has outstanding obligations due under the reinsurance agreements subject to the trust;

          (D)  No later than February 28 of each year, the trustees of the trust shall report to the commissioner in writing setting forth the balance of 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 next following December 31;

     (5)  Credits shall be allowed when the reinsurance is ceded to an assuming insurer not meeting the requirements of subdivision (1), (2), (3) or (4), but only with respect to the insurance of risks located in jurisdictions where the reinsurance is required by applicable law or regulation of that jurisdiction; and

     (6)  If the assuming insurer is not licensed or accredited to transact insurance or reinsurance in this state, the credit permitted by subdivisions (3) and (4) shall not be allowed unless the assuming insurer agrees in the reinsurance agreements:

          (A)  That, in the event of the failure of the assuming insurer to perform its obligations under the terms of the reinsurance agreement, the assuming insurer, at the request of the ceding insurer, shall submit to the jurisdiction of any court of competent jurisdiction in any state of the United States, will comply with all requirements necessary to give the court jurisdiction, and will abide by the final decision of the court or of any appellate court in the event of an appeal; and

          (B)  To designate the commissioner or a designated attorney as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the ceding company. This subdivision (6)(B) is not intended to conflict with or override the obligation of the parties to a reinsurance agreement to arbitrate their disputes, if such an obligation is created in the agreement.

[Acts 1947, ch. 154, § 2; 1949, ch. 105, § 1; C. Supp. 1950, § 6105.2 (Williams, § 6459.71); T.C.A. (orig. ed.), §§ 56-212; 56-226; Acts 1985, ch. 252, § 1; 1993, ch. 253, § 8; 1994, ch. 585, §§ 1, 2.]