Law:Title 4. Regulation Of Solvency. Subtitle F. Reinsurance from Chapter 492. Reinsurance For Life, Health, And Accident Insurance Companies And Related Entities (Texas)

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Subtitle F. Reinsurance

Contents

Chapter 492. Reinsurance For Life, Health, And Accident Insurance Companies And Related Entities

Subchapter A. General Provisions

Section 492.001.  Definitions.

In this chapter:

(1)  "Assuming insurer" means an insurer that, under a reinsurance contract, incurs an obligation to a ceding insurer, the performance of which is contingent on the ceding insurer's incurring liability or loss under the ceding insurer's insurance contract with a third person.

(2)  "Qualified United States financial institution" means an institution that:

(A)  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 of the United States; and

(B)  is regulated, supervised, and examined by a federal or state authority that has regulatory authority over banks and trust companies.

Added by Acts 2005, 79th Leg., Ch. 727, Sec. 1, eff. April 1, 2007.



Section 492.002.  Applicability Of Chapter.

(a) Except as provided by Subsection (b), this chapter applies to:

(1)  all life, health, and accident insurance companies regulated by the department, including:

(A)  a stock or mutual life, health, or accident insurance company;

(B)  a fraternal benefit society; and

(C)  a nonprofit hospital, medical, or dental service corporation, including a group hospital service corporation operating under Chapter 842; and

(2)  a health maintenance organization operating under Chapter 843.

(b)  This chapter does not apply to a ceding insurer domiciled in another state that regulates credit for reinsurance under statutes, rules, or regulations substantially similar in substance or effect to this chapter if the ceding insurer on request provides the commissioner with:

(1)  evidence of the similarity in the form of those statutes, rules, or regulations; and

(2)  an interpretation of the statutes, rules, or regulations and the standards used by the state of domicile.

Added by Acts 2005, 79th Leg., Ch. 727, Sec. 1, eff. April 1, 2007.



Section 492.003.  Rules.

The commissioner may adopt rules implementing this chapter.

Added by Acts 2005, 79th Leg., Ch. 727, Sec. 1, eff. April 1, 2007.



Subchapter B. Reinsurance

Section 492.051.  Reinsurance Authorized.

(a) An insurer authorized to engage in the business of insurance in this state may reinsure in any solvent assuming insurer any risk or part of a risk that both insurers are authorized to assume.

(b)  A life insurance company authorized to engage in business in this state may provide reinsurance on the same basis as an insurer described by Section 493.051(b).

(c)  The commissioner may adopt necessary and reasonable rules under Subsection (b) to protect the public interest.

Added by Acts 2005, 79th Leg., Ch. 727, Sec. 1, eff. April 1, 2007.



Section 492.052.  Limitation On Reinsurance Of Entire Outstanding Business.

(a) An insurer may not reinsure the insurer's entire outstanding business in an assuming insurer unless the assuming insurer is authorized to engage in the business of insurance in this state.

(b)  Before the date of reinsurance:

(1)  the reinsurance contract must be submitted to the commissioner; and

(2)  the commissioner must approve the contract as fully protecting the interests of all policyholders.

Added by Acts 2005, 79th Leg., Ch. 727, Sec. 1, eff. April 1, 2007.



Section 492.053.  Limitation On Reinsurance Of Risks Of Insurer With Less Than Minimum Capital And Surplus.

An insurer operating under Section 841.204 may not reinsure any risk or part of a risk in an insurer that is not authorized to engage in the business of insurance in this state.

Added by Acts 2005, 79th Leg., Ch. 727, Sec. 1, eff. April 1, 2007.



Section 492.054.  Filing Of Reinsurance Schedules.

The commissioner shall require each insurer to file reinsurance schedules:

(1)  when the insurer makes the insurer's annual report; and

(2)  at other times as the commissioner directs.

Added by Acts 2005, 79th Leg., Ch. 727, Sec. 1, eff. April 1, 2007.



Section 492.055.  Accounting For Reinsurance Contracts.

(a) An insurer shall account for reinsurance contracts and shall record the contracts in the insurer's financial statements in a manner that accurately reflects the effect of the contracts on the insurer's financial condition.

(b)  A reinsurance contract may contain a provision allowing the offset of mutual debts and credits between the ceding insurer and the assuming insurer, whether arising out of one or more reinsurance contracts.

(c)  The commissioner may adopt reasonable rules relating to:

(1)  the accounting and financial statement requirements of this section and the treatment of reinsurance contracts between insurers, including minimum risk transfer standards, asset debits or credits, reinsurance debits or credits, and reserve debits or credits relating to the transfer of all or any part of an insurer's risks or liabilities by reinsurance contracts; and

(2)  any contingencies arising from reinsurance contracts.

(d)  A rule adopted under Subsection (c) after September 1, 1995, applies to:

(1)  a reinsurance contract entered into on or after the effective date of the rule; and

(2)  a reinsurance contract that is amended on or after the effective date of the rule.

Added by Acts 2005, 79th Leg., Ch. 727, Sec. 1, eff. April 1, 2007.



Section 492.056.  Limitation On Rights Against Reinsurer.

A person does not have a right against a reinsurer that is not specifically stated in:

(1)  the reinsurance contract; or

(2)  a specific agreement between the reinsurer and the person.

Added by Acts 2005, 79th Leg., Ch. 727, Sec. 1, eff. April 1, 2007.



Subchapter C. Credit For Reinsurance

Section 492.101.  Exclusive Procedure For Taking Credit For Reinsurance.

A ceding insurer may take a credit for reinsurance, as an asset or as a deduction from liability, only as provided by this chapter.

Added by Acts 2005, 79th Leg., Ch. 727, Sec. 1, eff. April 1, 2007.



Section 492.102.  Credit For Reinsurance Generally.

(a) A ceding insurer may be allowed credit for reinsurance ceded, as an asset or as a deduction from liability, only if the reinsurance is ceded to an assuming insurer that:

(1)  is authorized to engage in the business of insurance or reinsurance in this state;

(2)  is accredited as a reinsurer in this state, as provided by Section 492.103; or

(3)  subject to Subchapter D, maintains, in a qualified United States financial institution that has been granted the authority to operate with fiduciary powers, a trust fund to pay valid claims of:

(A)  the assuming insurer's United States policyholders and ceding insurers; and

(B)  the policyholders' and ceding insurers' assigns and successors in interest.

(b)  Notwithstanding Subsection (a), a ceding insurer may be allowed credit for reinsurance ceded to an assuming insurer that does not meet the requirements of that subsection, but only with respect to the insurance of risks located in a jurisdiction in which the reinsurance is required by the jurisdiction's law, including regulations, to be ceded to an assuming insurer that does not meet the requirements of that subsection.

Added by Acts 2005, 79th Leg., Ch. 727, Sec. 1, eff. April 1, 2007.



Section 492.103.  Accredited Reinsurer.

For purposes of Section 492.102(a)(2), an insurer is accredited as a reinsurer in this state if the insurer:

(1)  submits to this state's jurisdiction;

(2)  submits to this state's authority to examine the insurer's books and records;

(3)  is domiciled and authorized to engage in the business of insurance or reinsurance in at least one state or, if the insurer is a United States branch of an alien assuming insurer, is entered through and authorized to engage in the business of insurance or reinsurance in at least one state;

(4)  annually files with the department a copy of the annual statement the insurer files with the insurance department of the insurer's state of domicile; and

(5)  maintains a surplus as regards policyholders in an amount of at least $20 million.

Added by Acts 2005, 79th Leg., Ch. 727, Sec. 1, eff. April 1, 2007.



Section 492.104.  Credit For Funds Securing Reinsurance Obligations.

(a) Subject to Subsection (b), any asset or deduction from liability for reinsurance ceded to an assuming insurer that does not meet the requirements of Section 492.102 shall be allowed in an amount that does not exceed the liabilities carried by the ceding insurer and in the amount of funds held by or on behalf of the ceding insurer under a reinsurance contract with the assuming insurer, including funds held in trust for the ceding insurer, as security for the payment of obligations under the contract.

(b)  The funds held as security:

(1)  must be 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 that has been granted the authority to operate with fiduciary powers; and

(2)  may be in the form of:

(A)  cash;

(B)  securities that:

(i)  are readily marketable over a national exchange;

(ii)  have a maturity date of not later than one year;

(iii)  are listed by the Securities Valuation Office of the National Association of Insurance Commissioners; and

(iv)  qualify as admitted assets;

(C)  subject to Section 492.105, a clean, irrevocable, unconditional letter of credit, issued or confirmed by a qualified United States financial institution that has been determined by the commissioner or the Securities Valuation Office of the National Association of Insurance Commissioners to meet the standards of financial condition and standing that are considered necessary and appropriate to regulate the quality of financial institutions whose letters of credit will be acceptable to the commissioner; or

(D)  another form of security acceptable to the commissioner.

Added by Acts 2005, 79th Leg., Ch. 727, Sec. 1, eff. April 1, 2007.



Section 492.105.  Acceptability Of Certain Letters Of Credit.

A letter of credit issued or confirmed by an institution that meets the standards prescribed by Section 492.104(b)(2)(C) as of the date the letter is issued or confirmed, but later fails to meet those standards, continues to be acceptable as security under Section 492.104 until the earliest of:

(1)  the letter's expiration;

(2)  the letter's extension, renewal, modification, or amendment after the date the institution fails to meet those standards; or

(3)  the expiration of the three-month period after the date the institution fails to meet those standards.

Added by Acts 2005, 79th Leg., Ch. 727, Sec. 1, eff. April 1, 2007.



Section 492.106.  Credit For Reinsurance: Direct Payment On Liability Required.

A ceding insurer may not be given credit for reinsurance ceded, as an asset or as a deduction from liability, in an accounting or financial statement unless the reinsurance is payable by the assuming insurer:

(1)  on the liability of the ceding insurer under the contracts reinsured, without diminution because of the ceding insurer's insolvency; and

(2)  directly to the ceding insurer or to the ceding insurer's domiciliary liquidator or receiver.

Added by Acts 2005, 79th Leg., Ch. 727, Sec. 1, eff. April 1, 2007.



Section 492.107.  Request For Information From Assuming Insurer.

(a) The commissioner may request that an assuming insurer not meeting the requirements of Section 492.102 file:

(1)  financial statements certified and audited by an independent certified public accountant;

(2)  a certified copy of the certificate or letter of authority from the domiciliary jurisdiction; and

(3)  information on the principals and management of the assuming insurer.

(b)  If an assuming insurer does not comply with a request under this section, the commissioner may issue a directive prohibiting all authorized insurers from taking credit for business ceded to the assuming insurer after the effective date of the directive.

(c)  An unauthorized insurer that is included in the most recent quarterly listing published by the International Insurers Department of the National Association of Insurance Commissioners is considered to have complied with a request under this section.

Added by Acts 2005, 79th Leg., Ch. 727, Sec. 1, eff. April 1, 2007.



Subchapter D. Requirements For Trust Credit Allowance

Section 492.151. 

 APPLICABILITY OF

Subchapter

. This subchapter applies to a trust that is used to qualify for a reinsurance credit under Section 492.102(a)(3) and to the assuming insurer that maintains the trust fund.

Added by Acts 2005, 79th Leg., Ch. 727, Sec. 1, eff. April 1, 2007.



Section 492.152.  Composition Of Trust.

(a) If the assuming insurer is a single insurer, the trust must:

(1)  consist of a trusteed account representing the assuming insurer's liabilities attributable to business written in the United States; and

(2)  include a trusteed surplus of at least $20 million.

(b)  If the assuming insurer is a group of insurers that includes an unincorporated individual insurer:

(1)  the trust must:

(A)  consist of a trusteed account representing the group's liabilities attributable to business written in the United States; and

(B)  include a trusteed surplus of at least $100 million; and

(2)  the group shall make available to the department an annual certification by the group's domiciliary regulator and its independent public accountants of each underwriter's solvency.

Added by Acts 2005, 79th Leg., Ch. 727, Sec. 1, eff. April 1, 2007.



Section 492.153.  Form Of Trust.

The trust must be established in a form approved by the commissioner.

Added by Acts 2005, 79th Leg., Ch. 727, Sec. 1, eff. April 1, 2007.



Section 492.154.  Terms Of Trust.

(a) The trust instrument must provide that contested claims are valid and enforceable on the final order of any court in the United States.

(b)  The trust must vest legal title to the trust's assets in the trustees of the trust for:

(1)  the trust's United States policyholders and ceding insurers; and

(2)  the policyholders' and ceding insurers' assigns and successors in interest.

(c)  The trust must remain in effect as long as the assuming insurer has outstanding obligations under a reinsurance contract subject to the trust.

Added by Acts 2005, 79th Leg., Ch. 727, Sec. 1, eff. April 1, 2007.



Section 492.155.  Reports And Certification.

(a) Not later than February 28 of each year, the trustees of the trust shall:

(1)  report to the department in writing, showing the balance of the trust and listing the trust's investments at the end of the preceding year; and

(2)  certify the date of termination of the trust, if termination is planned, or certify that the trust will not expire before December 31 of the year of the report.

(b)  To enable the commissioner to determine the sufficiency of the trust fund under Section 492.102(a)(3), the assuming insurer shall report to the department not later than March 1 of each year information substantially the same as the information required to be reported by an authorized insurer on the National Association of Insurance Commissioners' Annual Statement form.

Added by Acts 2005, 79th Leg., Ch. 727, Sec. 1, eff. April 1, 2007.



Section 492.156.  Certain Trusteed Assuming Insurers:  Requirements For Reinsurance Contract.

(a) A ceding insurer may not be allowed credit under Section 492.102(a)(3) for reinsurance ceded to an assuming insurer that is not authorized or accredited to engage in the business of insurance or reinsurance in this state unless the assuming insurer agrees in the reinsurance contract:

(1)  that, if the assuming insurer fails to perform the assuming insurer's obligations under the reinsurance contract, the assuming insurer, at the request of the ceding insurer, will:

(A)  submit to the jurisdiction of a court in any state of the United States;

(B)  comply with all requirements necessary to give the court jurisdiction; and

(C)  abide by the final decision of that court or, if the court's decision is appealed, of the appellate court; and

(2)  to designate the commissioner or an attorney as an agent for service of process in any action, suit, or proceeding instituted by or on behalf of the ceding insurer.

(b)  This section is not intended to conflict with or override a provision in a reinsurance contract that requires the parties to arbitrate the parties' disputes.

Added by Acts 2005, 79th Leg., Ch. 727, Sec. 1, eff. April 1, 2007.



Section 492.157.  Examination Of Trust And Assuming Insurer.

The trust and the assuming insurer are subject to examination as determined by the commissioner.

Added by Acts 2005, 79th Leg., Ch. 727, Sec. 1, eff. April 1, 2007.


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