03/11/04 0630s

22Apr2004… 1084h

05/06/04 1565eba

2004 SESSION

04-3074

01/10

SENATE BILL 368

COMMITTEE: Insurance

ANALYSIS

This bill amends the existing law regarding reinsurance to conform to the National Association of Insurance Commissioner’s (NAIC) model.

This bill is a request of the insurance department.

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Explanation: Matter added to current law appears in bold italics.

Matter removed from current law appears [in brackets and struckthrough.]

Matter which is either (a) all new or (b) repealed and reenacted appears in regular type.

03/11/04 0630s

22Apr2004… 1084h

05/06/04 1565eba

04-3074

01/10

STATE OF NEW HAMPSHIRE

In the Year of Our Lord Two Thousand Four

Be it Enacted by the Senate and House of Representatives in General Court convened:

186:1 Insurance; Reinsurance. RSA 405:45 through RSA 405:52 are repealed and reenacted to read as follows:

405:45 Purpose. The purpose of this subdivision is to protect the interest of insureds, claimants, ceding insurers, assuming insurers, and the public generally. The general court hereby declares its intent is to ensure adequate regulation of insurers and reinsurers and adequate protection for those to whom they owe obligations. In furtherance of that state interest, the general court hereby provides a mandate that upon the insolvency of a non-U.S. insurer or reinsurer that provides security to fund its United States obligations in accordance with this subdivision, the assets representing the security shall be maintained in the United States and claims shall be filed with and valued by the state insurance commissioner with regulatory oversight, and the assets shall be distributed, in accordance with the laws of the state in which the trust is domiciled that are applicable to the liquidation of domestic United States insurance companies. The general court declares that the matters contained in this subdivision are fundamental to the business of insurance in accordance with 15 U.S.C. sections 1011-1012.

405:46 Definitions. In this subdivision:

I. “Assuming insurer” means any insurance company which assumes, in any manner or form whatever, the whole or any part of any risk or liability and shall include any underwriting member of an insurance exchange, assigned risk pool, joint underwriting association, syndicate, reciprocal exchange, reinsurance facility, health maintenance organization, health service corporation, or medical service corporation.

II. “Domestic ceding insurer” means any insurance company or association which is incorporated under the laws of this state and shall include health maintenance organizations licensed pursuant to RSA 420-B, and nonprofit health service corporations licensed pursuant to RSA 420-A.

III. “Evergreen letters of credit” means that the letter of credit is automatically renewed unless some affirmative action is taken prior to the expiration date.

IV. “Liability” includes the reserves of loss adjustment expense, unearned premiums, outstanding case, and incurred by not reported losses.

V. “NAIC” means the National Association of Insurance Commissioners.

VI. “Qualified United States financial institution” means an institution that:

(a) Is organized or, in the case of a U.S. office of a foreign banking organization, licensed, under the laws of the United States or any state thereof.

(b) Is regulated, supervised, and examined by federal or state authorities having regulatory authority over banks and trust companies.

(c) Has been determined by either the commissioner or the Securities Valuation Office of the NAIC 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 shall be acceptable to the commissioner.

VII. “Qualified United States financial institution” also means, for those institutions that are eligible to act as a fiduciary of a trust, an institution that:

(a) Is organized, or, in the case of a U.S. 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.

(b) Is regulated, supervised and examined by federal or state authorities having regulatory authority over banks and trust companies.

VIII. “State” means the United States, District of Columbia, Virgin Islands, Guam, and Puerto Rico.

405:47 Credit Allowed a Domestic Ceding Insurer. Credit for reinsurance shall be allowed a domestic ceding insurer as either an asset or a reduction from liability on account of reinsurance ceded only when the reinsurer meets the requirements of paragraphs I, II, III, IV, or V. Credit shall be allowed under paragraphs I, II, or III only relating to cessions of those kinds or classes of business which the assuming insurer is licensed or otherwise permitted to write or assume in its state of domicile or, in the case of a U.S. branch of an alien assuming insurer, in the state through which it is entered and licensed to transact insurance or reinsurance. Credit shall be allowed under paragraphs III or IV only if the applicable requirements of paragraph VI have been satisfied.

I. Credit shall be allowed when the reinsurance is ceded to an assuming insurer that is licensed to transact that line of insurance or reinsurance in this state.

II.(a) 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:

(1) Files with the commissioner evidence of its submission to this state’s jurisdiction.

(2) Submits to this state’s authority to examine its books and records.

(3) Is licensed to transact the ceded line of insurance or reinsurance in at least one state, or, in the case of a U.S. branch of an alien assuming insurer, is entered through and licensed to transact insurance or reinsurance in at least one state.

(4) 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:

(A) Maintains a surplus concerning policyholders in an amount not less than $20,000,000 and whose accreditation has not been denied by the commissioner within 90 days of its submission; or

(B) Maintains a surplus concerning policyholders in an amount less than $20,000,000 and whose accreditation has been approved by the commissioner.

(b) Credit shall not be allowed a domestic ceding insurer if the assuming insurer’s accreditation has been revoked by the commissioner after notice and hearing.

III.(a) Credit shall be allowed when the reinsurance is ceded to an assuming insurer that is domiciled in, or in case of a U.S. branch of an alien assuming insurer that is entered through, a state that employs standards regarding credit for reinsurance substantially similar to those applicable under this subdivision and the assuming insurer or U.S. branch of an alien assuming insurer:

(1) Maintains a surplus concerning policyholders in an amount not less than $20,000,000; and

(2) Submits to the authority of this state to examine its books and records.

(b) The requirement of subparagraph III(a)(1) shall not apply to reinsurance ceded and assumed pursuant to pooling arrangements among insurers in the same holding company system.

IV.(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 RSA 405:46, VII, for the payment of the valid claims of its United States ceding insurers, their assigns and successors in interest. To enable the commissioner to determine the sufficiency of the trust fund, the assuming insurer shall report annually to the commissioner information substantially the same as that required to be reported on the NAIC Annual Statement form by licensed insurers. The assuming insurer shall submit to examination of its books and records by the commissioner and bear the expense of examination.

(b)(1) Credit for reinsurance shall not be granted under this section unless the form of the trust and any amendments to the trust have been approved by:

(A) The commissioner of the state where the trust is domiciled; or

(B) The commissioner of another state who, pursuant to the terms of the trust instrument, has accepted principal regulatory oversight of the trust.

(2) The form of the trust and any trust amendments also shall be filed with the commissioner of every state in which the ceding insurer beneficiaries of the trust are domiciled. The trust instrument shall provide that contested claims shall be valid and enforceable upon the final order of any court of competent jurisdiction of the United States. The trust shall vest legal title to its assets in its trustees for the benefit of the assuming insurer’s U.S. ceding insurers, their assigns and successors in interest. The trust and the assuming insurer shall be subject to examination as determined by the commissioner.

(3) The trust shall remain in effect for as long as the assuming insurer has outstanding obligations due under the reinsurance agreements subject to the trust. No later than February 28 of each year, the trustee of the trust shall report to the commissioner in writing 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 will not expire prior to the following December 31.

(c) The following requirements apply to the following categories of assuming insurers:

(1) The trust fund for a single assuming insurer shall consist of funds in trust in an amount not less than the assuming insurer’s liabilities attributable to reinsurance ceded by U.S. ceding insurers, and, in addition, the assuming insurer shall maintain a trusteed surplus of not less than $20,000,000.

(2) In the case of a group including incorporated and individual unincorporated underwriters:

(A) For reinsurance ceded under reinsurance agreements with an inception, amendment, or renewal date on or after August 1, 1995, the trust shall consist of a trusteed account in an amount not less than the group’s several liabilities attributable to business ceded by U.S. domiciled ceding insurers to any member of the group;

(B) For reinsurance ceded under reinsurance agreements with an inception date on or before July 31, 1995, and not amended or renewed after that date, notwithstanding the other provisions of this chapter, the trust shall consist of a trusteed account in an amount not less than the group’s several insurance and reinsurance liabilities attributable to business written in the United States; and

(C) In addition to these trusts, the group shall maintain in trust a trusteed surplus of which $100,000,000 shall be held jointly for the benefit of the U.S. domiciled ceding insurers of any member of the group for all years of account; and

(3) 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 regulation and solvency control by the group’s domiciliary regulator as are the unincorporated members.

(4) Within 90 days after its financial statements are due to be filed with the group’s domiciliary regulator, the group shall provide to the commissioner an annual certification by the group’s domiciliary regulator of the solvency of each underwriter member; or if a certification is unavailable, financial statements, prepared by independent public accountants, of each underwriter member of the group.

(d) In the case of a group of incorporated underwriters under common administration, the group shall:

(1) Have continuously transacted an insurance business outside the United States for at least 3 years immediately prior to making application for accreditation;

(2) Maintain aggregate policyholders’ surplus of at least $10,000,000,000;

(3) Maintain a trust fund in an amount not less than the group’s several liabilities attributable to business ceded by U.S. domiciled ceding insurers to any member of the group pursuant to reinsurance contracts issued in the name of the group;

(4) In addition, maintain a joint trusteed surplus of which $100,000,000 shall be held jointly for the benefit of U.S. domiciled ceding insurers of any member of the group as additional security for these liabilities; and

(5) Within 90 days after financial statements are due to be filed with the group’s domiciliary regulator, make available to the commissioner an annual certification of each underwriter member’s solvency by the member’s domiciliary regulator and financial statements of each underwriter member of the group prepared by its independent public accountant.

V. Credit shall be allowed when the reinsurance is ceded to an assuming insurer not meeting the requirements of paragraphs I, II, III or IV, but only with respect to the insurance of risks located in the jurisdictions where the reinsurance is required by applicable law or regulation of that jurisdiction.

VI. If the assuming insurer is not licensed or accredited to transact insurance or reinsurance in this state, then the credit permitted by paragraphs III and IV 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:

(1) Shall submit to the jurisdiction of any court of competent jurisdiction in any state of the United States;

(2) Shall comply with all requirements necessary to give such court jurisdiction; and

(3) Shall abide by the final decision of such court or of any appellate court in the event of an appeal.

(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.

(c) This paragraph shall not conflict with or override the obligation of the parties to a reinsurance agreement to arbitrate their disputes, if this obligation is created in the agreement.

(d) Before any unauthorized reinsurer files or causes to be filed any pleading in any court action or an appearance in response to any court action or administrative proceeding, such reinsurer shall either:

(1) Deposit with the clerk of the court in which such action, suit, or proceeding is pending, or with the commissioner in administrative proceedings, cash or securities or bond with good and sufficient sureties to be approved by the court, or the commissioner, in an amount to be fixed by the court or the commissioner sufficient to secure the payment of any final judgment which may be rendered in such court proceeding or in such administrative proceeding; or

(2) Procure a license to transact reinsurance business in this state.

(e) The court in any action, suit, or proceeding or the commissioner in any administrative proceeding referred to in subparagraph (d), may, in its or his or her discretion, order such postponement as may be necessary to afford the reinsurer reasonable opportunity to comply with subparagraph (d) and to defend such court action or administrative proceeding.

405:48 Nonlicensed or Accredited Insurer. If the assuming insurer does not meet the requirements of RSA 405:47, I-III, the credit permitted by RSA 405:47 shall not be allowed unless the assuming insurer agrees in the trust agreements to the following conditions:

I. Notwithstanding any other provisions in the trust instrument, if the trust fund is inadequate because it contains an amount less than the amount required by RSA 405:47, IV(c), or if the grantor of the trust has been declared insolvent or placed into receivership, rehabilitation, liquidation or similar proceedings under the laws of its state or country of domicile, the trustee shall comply with an order of the commissioner with regulatory oversight over the trust or with an order of a court of competent jurisdiction directing the trustee to transfer to the commissioner with regulatory oversight all of the assets of the trust fund.

II. The assets shall be distributed by and claims shall be filed with and valued by the commissioner with regulatory oversight over the trust in accordance with the laws of the state in which the trust is domiciled that are applicable to the liquidation of domestic insurance companies.

III. If the commissioner with regulatory oversight over the trust determines that the assets of the trust fund or any part thereof are not necessary to satisfy the claims of the U.S. ceding insurers of the grantor of the trust, the assets or part thereof shall be returned by the commissioner with regulatory oversight to the trustee for distribution in accordance with the trust agreement.

IV. The grantor shall waive any right otherwise available to it under U.S. law that is inconsistent with this provision.

405:49 Reinsurance Insolvency.

I. No credit shall be allowed, as an admitted asset or deduction from liability, to any ceding insurer for reinsurance, unless the reinsurance contract provides, in substance, that in the event of the insolvency of the ceding insurer, the reinsurance shall be payable by the assuming insurer on the basis of the claims allowed against the ceding insurer in the insolvency proceedings, under contract or contracts reinsured without diminution because of the insolvency of the ceding insurer directly to the ceding insurer or to its domiciliary liquidator or receiver except:

(a) Where the contract specifically provides another payee of such reinsurance in the event of the insolvency of the ceding insurer; or

(b) Where the assuming insurer with the consent of the direct insured or insured has assumed such policy obligations of the ceding insurer as direct obligations of the assuming insurer to the payees under such policies and in substitution for the obligations of the ceding insurer to such payees.

II. A reinsurance contract may provide that the domiciliary liquidator or receiver of any insolvent ceding insurer shall, within a specified or reasonable time after the claim is filed in court or in the receivership, give written notice to the assuming insurer of all or part of any claim against the ceding insurer on the policy or bond reinsured. During the pendency of the claim, any assuming insurer may investigate the claim and, unless forbidden to do so by the reinsurance agreement, may intervene in the proceeding in which the claim is pending and interpose any defenses it considers available which have not been raised by the ceding insurer, its liquidator or receiver. The expenses incurred by the assuming insurer in this type of action are payable up to the amount of the expenses or the amount of the benefit produced, whichever is less, as expenses of the receivership. If 2 or more assuming insurers have potential liability because of the same claim, the expenses shall be apportioned among them in proportion to the benefit received.

405:50 Asset or Reduction From Liability; Collateral. An asset or a reduction from liability for the reinsurance ceded by a domestic insurer to an assuming insurer not meeting the requirements of RSA 405:47 shall be allowed in an amount not exceeding the liabilities carried by the ceding insurer. The 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 under such contract, if the 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 RSA 405:46. This security may be in the form of:

I. Cash.

II. Securities listed by the Securities Valuation Office of the National Association of Insurance Commissioners and qualifying as admitted assets.

III.(a) Clean, irrevocable, unconditional letters of credit, issued or confirmed by a qualified United States financial institution, as defined in RSA 405:46, VI effective no later than December 31, of the year for which filing is being made, and in the possession of, or in trust for, the ceding company on or before the filing date of its annual statement;

(b) 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.

IV. Any other form of security acceptable to the commissioner.

405:51 Reinsurance Contract. No person shall have any rights against the reinsurer which are not specifically set forth in the contract of reinsurance or in a specific agreement between the reinsurer and the person.

405:52 Penalty. Any domestic ceding insurer failing to comply with any of the provisions of this subdivision shall be fined not more than $2,500 for each ceded policy, or the commissioner may revoke the license of such company for one year, or both.

405:52-a Rulemaking. The commissioner may adopt rules, pursuant to RSA 541-A, relative to forms of trusts and acceptable security, required information in filings, enforcement and penalties provided in this subdivision.

186:2 Effective Date. This act shall take effect 60 days after its passage.

(Approved: June 1, 2004)

(Effective Date: July 31, 2004)