58-14-3. Risk limits applicable.

An insurer may only reinsure risks within the limits it is authorized to insure.

Source: SL 1966, ch 111, ch 4, § 10 (1); SL 1992, ch 344, § 14.

58-14-4. Credit not allowable as an asset or deduction from liability to ceding insurer--Exceptions--Payments.

No credit may be allowed, as an asset or as a 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 is payable under a contract reinsured by the reinsurer on the basis of reported claims allowed in the liquidation proceeding or proof of payment of the claim by a guaranty association without diminution because of the insolvency of the ceding insurer. Such payments shall be made directly to the ceding insurer or to its domiciliary liquidator unless:

(1)    The contract or other written agreement specifically provides another payee of such reinsurance in the event of the insolvency of the ceding insurer; or

(2)    The reinsurer, with the consent of the direct insured, has assumed such policy obligations of the ceding insurer as direct obligations of the reinsurer to the payees under such policies and in substitution for the obligations of the ceding insurer to such payees. The consent of the liquidator is required for any such assumption of policy obligations effected after an order of liquidation.

Source: SL 1966, ch 111, ch 4, § 10 (3); SL 1992, ch 344, § 15; SL 2005, ch 274, § 3.

58-14-4.1. Association election to succeed to rights and obligations of insolvent insurer under reinsurance contract--Reinsurer's liability to pay claims.

Notwithstanding § 58-14-4, if a life and health insurance guaranty association has made the election to succeed to the rights and obligations of the insolvent insurer under the contract of reinsurance, the reinsurer's liability to pay covered reinsured claims continues under the contract of reinsurance, subject to the payment to the reinsurer of the reinsurance premiums for such coverage. Payment for such reinsured claims may only be made by the reinsurer pursuant to the direction of the guaranty association or its designated successor. Any payment made at the direction of the guaranty association or its designated successor by the reinsurer discharges the reinsurer of any further liability to any other party for the claim payment.

Source: SL 2005, ch 274, § 4.

58-14-4.2. Liquidator of insolvent ceding insurer to provide notice to reinsurer of claim against ceding insurer--Investigation and election to interpose defense.

The reinsurance agreement may provide that the domiciliary liquidator of an insolvent ceding insurer shall give written notice to the reinsurer of the pendency of a claim against such ceding insurer on the contract reinsured within a reasonable time after such claim is filed in the liquidation proceeding. During the pendency of such claim, any reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated any defenses that it deems available to the ceding insurer or its liquidator. Such expense may be filed as a claim against the insolvent ceding insurer as a Class 6 claim pursuant to § 58-29B-124 to the extent of a proportionate share of the benefit that may accrue to the ceding insurer solely as result of the defense undertaken by the reinsurer. If two or more reinsurers are involved in the same claim and a majority in interest elect to interpose a defense to such claim, the expense shall be apportioned in accordance with the terms of the reinsurance agreement as though such expense had been incurred by the ceding insurer.

Source: SL 2005, ch 274, § 5.

58-14-5. Reinsurance contracts filed by ceding insurer--Cancellation or material change, duty to inform director.

A ceding insurer shall file copies of all reinsurance contracts with the director and shall promptly inform the director in writing of the cancellation or any other change of any of its reinsurance treaties or arrangements.

Source: SL 1966, ch 111, ch 4, § 10 (4); SL 1992, ch 344, § 16.

58-14-6. Original insured--No interest in reinsurance.

The original insured has no interest in a contract of reinsurance.

Source: SL 1966, ch 111, ch 32, § 5.

58-14-7. Credit for reinsurance allowed for domestic ceding insurer as asset or reduction.

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 any one of the requirements of § 58-14-8, 58-14-9, 58-14-10, 58-14-11, 58-14-14, or 58-14-16.1. If meeting the requirements of § 58-14-10 or 58-14-11, the requirements of § 58-14-15 shall also be met. Credit shall be allowed under § 58-14-8, 58-14-9, or 58-14-10 only as respects cessions of those kinds or classes of business which the assuming insurer is licensed or permitted to write or assume in its state of domicile or, in the case of a United States branch of an alien assuming insurer, in the state through which it is entered and licensed to transact insurance or reinsurance.

Source: SL 1992, ch 344, § 1; SL 2017, ch 211, § 1.

58-14-8. Credit allowed for reinsurance if assuming insurer licensed in state.

Credit shall be allowed if the reinsurance is ceded to an assuming insurer which is licensed to transact insurance or reinsurance in this state.

Source: SL 1992, ch 344, § 2.

58-14-9. Requirements for reinsurer to be accredited.

Credit shall be allowed if the reinsurance is ceded to an assuming insurer that is accredited as a reinsurer in this state. For a reinsurer to be accredited, the reinsurer shall:

(1)    File with the director evidence of its submission to this state's jurisdiction;

(2)    Submit to this state's authority to examine its books and records;

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

(4)    File annually with the director 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

(5)    Demonstrate to the satisfaction of the director that the reinsurer has adequate financial capacity to meet reinsurance obligations and is otherwise qualified to assume reinsurance from domestic insurers. An assuming insurer is deemed to meet this requirement as of the time of the assuming insurer's application if the assuming insurer maintains a surplus as regards policyholders in an amount not less than twenty million dollars and the assuming insurer's accreditation has not been denied by the director within ninety days after submission of the assuming insurer's application.

The director, after reviewing the documents submitted, may approve or disapprove the reinsurer.

No credit may be allowed a domestic ceding insurer if the assuming insurer's accreditation has been revoked by the director after notice and hearing.

To qualify as an accredited reinsurer, an assuming insurer shall meet all of the requirements of this section.

The director may deny accreditation if the director determines that accreditation would not be in the best interest of the ceding insurer and policyholders.

Source: SL 1992, ch 344, § 3; SL 2017, ch 211, § 2.

58-14-10. A lien assuming insurer--Standards--Surplus required--Examination of records.

Credit shall be allowed if the reinsurance is ceded to an assuming insurer which is domiciled and licensed in, or in the case of a United States branch of an alien assuming insurer is entered through, a state which employs standards regarding credit for reinsurance substantially similar to those applicable under this chapter and the assuming insurer or United States branch of an alien assuming insurer:

(1)    Maintains a surplus as regards policyholders in an amount not less than twenty million dollars; and

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

Subdivision (1) of this section does not apply to reinsurance ceded and assumed pursuant to pooling arrangements among insurers in the same holding company system.

Source: SL 1992, ch 344, § 4.

58-14-11. Credit for reinsurance ceded to insurer maintaining trust fund for payment of valid claims--Annual report of assuming insurer.

Credit shall also be allowed if the reinsurance is ceded to an assuming insurer that maintains a trust fund in a qualified United States financial institution for the payment of the valid claims of the assuming insurer's United States ceding insurers, their assigns and successors in interest. The assuming insurer shall report annually to the director information substantially the same as that required to be reported on the National Association of Insurance Commissioners annual statement form by licensed insurers to enable the director to determine the sufficiency of the trust fund. The assuming insurer shall submit to examination of the assuming insurer's books and records by the director and bear the expense of examination.

Credit for reinsurance may not be granted pursuant to this section unless the form of the trust and any amendments to the trust have been approved by the commissioner of the state where the trust is domiciled, or the commissioner of another state has accepted principal regulatory oversight of the trust pursuant to the terms of the trust instrument.

Source: SL 1992, ch 344, § 5; SL 1994, ch 378; SL 2017, ch 211, § 3.

58-14-11.1. Trust fund requirements for single assuming insurer.

The trust fund in § 58-14-11 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 United States ceding insurers, and, in addition, the assuming insurer shall maintain a trusteed surplus of not less than twenty million dollars, except as provided in this section.

At any time after a single assuming insurer has permanently discontinued underwriting new business secured by the trust for at least three years, the director with principal regulatory oversight of the trust may authorize a reduction in the required trusteed surplus, but only after a finding, based on an assessment of the risk, that the new required surplus level is adequate for the protection of United States ceding insurers, policyholders, and claimants in light of reasonably foreseeable adverse loss development. The risk assessment may involve an actuarial review, including an independent analysis of reserves and cash flows, and shall consider all material risk factors, including when applicable the lines of business involved, the stability of the incurred loss estimates, and the effect of the surplus requirements on the assuming insurer's liquidity or solvency. The minimum required trusteed surplus may not be reduced to an amount less than thirty percent of the assuming insurer's liabilities attributable to reinsurance ceded by the United States ceding insurers covered by the trust.

Source: SL 2017, ch 211, § 4.

58-14-12. Trust fund requirements for group of incorporated underwriters.

In the case of a group of incorporated underwriters, the trust in § 58-14-11 shall be in an amount not less than 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. In addition, the group shall maintain a joint trusteed surplus of which one hundred million dollars shall be held jointly for the benefit of United States ceding insurers of any member of the group as additional security for any liabilities, and each member of the group shall make available to the director an annual certification of the 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 within ninety days after its financial statements are due to be filed with the group's domiciliary regulator. The group shall maintain a trust fund in an amount not less than the group's several liabilities attributable to business ceded by United States domiciled ceding insurers to any member of the group pursuant to reinsurance contracts issued in the name of the group.

A group of incorporated underwriters under this section are those under common administration which comply with the filing requirements contained in § 58-14-11, that has continuously transacted an insurance business outside the United States for at least three years immediately prior to making application for accreditation, that submits to this state's authority to examine its books and records and bears the expense of the examination, and that has aggregate policyholders' surplus of at least ten billion dollars.

Source: SL 1992, ch 344, § 6; SL 2017, ch 211, § 5.

58-14-12.1. Trust fund requirements for group including incorporated and individual unincorporated underwriters.

In the case of a group including incorporated and individual unincorporated underwriters, the trust in § 58-14-11 shall consist of a trusteed account in an amount not less than the respective underwriters' several liabilities attributable to business ceded by United States domiciled ceding insurers to any underwriter in the group. Notwithstanding the other provisions of this chapter, the trust in § 58-14-11 for reinsurance ceded under reinsurance agreements with an inception date on or before June 30, 1993, and not amended or renewed after that date, shall consist of a trusteed account in an amount not less than the respective underwriters' several insurance and reinsurance liabilities attributable to business written in the United States. In addition to these trusts, the group shall maintain in trust a trusteed surplus of which one hundred million dollars shall be held jointly for the benefit of United States domiciled ceding insurers of any member of the group for all years of account.

The incorporated members of the group with a trust under § 58-14-11 may 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.

Within ninety days after its financial statements are due to be filed with the group's domiciliary regulator, the group shall provide to the director 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.

Source: SL 2017, ch 211, § 6.

58-14-13. Establishment of trust--Annual report of balance and investments--Certification of termination of trust.

The form of the trust in § 58-14-11 and any trust amendments shall be filed with the director of each 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 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 are subject to examination as determined by the director. 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 twenty-eighth of each year, the trustees shall report to the director 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 does not expire prior to the next following December thirty-first.

Source: SL 1992, ch 344, § 7; SL 2017, ch 211, § 7.

58-14-14. Reinsurance credit for certain insurers limited to risks in foreign or alien jurisdictions.

Credit shall be allowed if the reinsurance is ceded to an assuming insurer not meeting the requirements of § 58-14-8, 58-14-9, 58-14-10, 58-14-11, or 58-14-16.1 but only with respect to the insurance of risks located in foreign or alien jurisdictions where the reinsurance is required by applicable law or regulation of that jurisdiction.

Source: SL 1992, ch 344, § 8; SL 2017, ch 211, § 8.

58-14-15. Allowance of credit for certain insurers not licensed, certified, or accredited in state.

If the assuming insurer is not licensed, certified, or accredited to transact insurance or reinsurance in this state, the credit permitted by § 58-14-10 or 58-14-11 may not be allowed unless the assuming insurer agrees in the reinsurance agreements:

(1)    That in the event of the failure of the assuming insurer to perform the assuming insurer's 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, comply with all requirements necessary to give the court jurisdiction, and abide by the final decision of any court or of any appellate court in the event of an appeal; and

(2)    To designate the director 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 section is not intended to conflict with or override the obligation of the parties to a reinsurance agreement to arbitrate their disputes if arbitration is created in the agreement.

Source: SL 1992, ch 344, § 9; SL 2017, ch 211, § 9.

58-14-16. Asset or reduction from liability for reinsurance ceded to insurer not meeting requirements of § 58-14-7--Security.

An asset or a reduction from liability for the reinsurance ceded by a domestic insurer to an assuming insurer not meeting the requirements of § 58-14-7 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 the assuming insurer as security for the payment of obligations. The security shall 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, it shall be held in a qualified United States financial institution, as defined in § 58-14-23. This security may be in the form of:

(1)    Cash;

(2)    Securities listed by the securities valuation office of the National Association of Insurance Commissioners (NAIC), including any security deemed exempt from filing as defined by the Purposes and Procedures Manual of the NAIC Investment Analysis Office as adopted by administrative rule, and qualifying as admitted assets;

(3)    Clean, irrevocable, unconditional letters of credit, issued or confirmed by a qualified United States financial institution as defined in § 58-14-16.18, effective no later than December thirty-first of the year for which the filing is being made, and in the possession of, or in the trust of, the ceding insurer on or before the filing date of the assuming insurer's annual statement. Letters of credit meeting applicable standards of issuer acceptability as of the dates of 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 the security's expiration, extension, renewal, modification, or amendment, whichever occurs first; or

(4)    Any other form of security acceptable to the director.

Source: SL 1992, ch 344, § 10; SL 2017, ch 211, § 10.

58-14-16.1. Credit allowed for reinsurance ceded to certified reinsurer.

Credit shall be allowed if the reinsurance is ceded to an assuming insurer that has been certified by the director as a reinsurer in this state and secures the assuming insurer's obligations in accordance with the requirements of §§ 58-14-16.2 to 58-14-16.15, inclusive.

Source: SL 2017, ch 211, § 12.

58-14-16.2. Eligibility for certification as reinsurer.

In order to be eligible for certification as a reinsurer, the assuming insurer shall:

(1)    Be domiciled and licensed to transact insurance or reinsurance in a qualified jurisdiction, as determined by the director pursuant to §§ 58-14-16.4 to 58-14-16.6, inclusive;

(2)    Maintain minimum capital and surplus, or its equivalent, in an amount promulgated in rule by the director;

(3)    Maintain financial strength ratings from two or more rating agencies deemed acceptable by the director pursuant to regulation;

(4)    Agree to submit to the jurisdiction of this state, appoint the director as the assuming insurer's agent for service of process in this state, and agree to provide security for one hundred percent of the assuming insurer's liabilities attributable to reinsurance ceded by the United States ceding insurers if the assuming insurer resists enforcement of a final United States judgment;

(5)    Agree to meet applicable information filing requirements as determined by the director, both with respect to an initial application for certification and on an ongoing basis; and

(6)    Satisfy any other requirements for certification deemed relevant by the director.

Source: SL 2017, ch 211, § 13.

58-14-16.3. Eligibility for certification of association including incorporated and individual unincorporated underwriters.

An association including incorporated and individual unincorporated underwriters may be a certified reinsurer. In addition to satisfying the requirements of § 58-14-16.2, to be eligible for certification:

(1)    The association shall satisfy the association's minimum capital and surplus requirements through the capital and surplus equivalents, net of liabilities, of the association and the association's members, which shall include a joint central fund that may be applied to any unsatisfied obligation of the association or any of its members, in an amount determined by the director to provide adequate protection;

(2)    The incorporated members of the association may not be engaged in any business other than underwriting as a member of the association and shall be subject to the same level of regulation and solvency control by the association's domiciliary regulator as are the unincorporated members; and

(3)    Within ninety days after its financial statements are due to be filed with the association's domiciliary regulator, the association shall provide to the director an annual certification by the association's domiciliary regulator of the solvency of each underwriter member. If the annual certification is unavailable, the association shall file financial statements, prepared by independent public accountants, of each underwriter member of the association.

Source: SL 2017, ch 211, § 14.

58-14-16.4. List of qualified jurisdictions from which domiciled insurer eligible for consideration for certification.

The director shall create and publish a list of qualified jurisdictions, under which an assuming insurer licensed and domiciled in the jurisdiction is eligible to be considered for certification by the director as a certified reinsurer.

If a certified reinsurer's domiciliary jurisdiction ceases to be a qualified jurisdiction, the director has the discretion to suspend the reinsurer's certification indefinitely, in lieu of revocation.

Source: SL 2017, ch 211, § 15.

58-14-16.5. Eligibility of non-United States domiciliary jurisdiction to be recognized as qualified jurisdiction.

To determine whether the domiciliary jurisdiction of a non-United States assuming insurer is eligible to be recognized as a qualified jurisdiction, the director shall evaluate the appropriateness and effectiveness of the reinsurance supervisory system of the jurisdiction, both initially and on an ongoing basis, and consider the rights, benefits, and the extent of reciprocal recognition afforded by the non-United States jurisdiction to reinsurers licensed and domiciled in the United States. A qualified jurisdiction shall agree to share information and cooperate with the director with respect to all certified reinsurers domiciled within that jurisdiction. A jurisdiction may not be recognized as qualified jurisdiction if the director has determined the jurisdiction does not adequately and promptly enforce final United States judgments and arbitration awards. Additional factors may be considered at the discretion of the director.

Source: SL 2017, ch 211, § 16.

58-14-16.6. National Association of Insurance Commissioners' list of qualified jurisdictions.

A list of qualified jurisdictions shall be published through the National Association of Insurance Commissioners. The director shall consider the list in determining qualified jurisdictions. If the director approves a jurisdiction as qualified that does not appear on the list of qualified jurisdictions, the director shall provide a thoroughly documented justification with criteria to be developed in administrative rules promulgated by the director, pursuant to chapter 1-26, to establish criteria for determining the qualifications of the jurisdictions.

United States jurisdictions that meet the requirements for accreditation under the National Association of Insurance Commissioners financial standards and accreditation program shall be recognized as qualified jurisdictions.

Source: SL 2017, ch 211, § 17.

58-14-16.7. Rating of certified reinsurer.

The director shall assign a rating to each certified reinsurer, giving due consideration to the financial strength ratings that have been assigned by rating agencies deemed acceptable to the director. The director shall publish a list of all certified reinsurers and their ratings.

Source: SL 2017, ch 211, § 18.

58-14-16.8. Obligations assumed from United States ceding insurers to be secured consistent with rating.

A certified reinsurer shall secure obligations assumed from United States ceding insurers under §§ 58-14-16.9 to 58-14-16.13, inclusive, at a level consistent with the certified reinsurer's rating. The director may promulgate rules, pursuant to chapter 1-26, to establish standards under §§ 58-14-16.9 to 58-14-16.13, inclusive.

Source: SL 2017, ch 211, § 19.

58-14-16.9. Security required for domestic ceding insurer to qualify for full financial statement credit for reinsurance ceded to certified reinsurer.

In order for a domestic ceding insurer to qualify for full financial statement credit for reinsurance ceded to a certified reinsurer, the certified reinsurer shall maintain security in a form acceptable to the director and consistent with § 58-14-16, or in a multibeneficiary trust in accordance with § 58-14-11, except as otherwise provided in §§ 58-14-16.8 to 58-14-16.13, inclusive.

Source: SL 2017, ch 211, § 20.

58-14-16.10. Trust accounts of certified reinsurer securing obligations as multibeneficiary trust.

If a certified reinsurer maintains a trust to fully secure the certified reinsurer's obligations subject to § 58-14-11 and chooses to secure the certified reinsurer's obligations incurred as a certified reinsurer in the form of a multibeneficiary trust, the certified reinsurer shall maintain separate trust accounts for the certified reinsurer's obligations incurred under reinsurance agreements issued or renewed as a certified reinsurer with reduced security as permitted by this chapter or comparable laws of other United States jurisdictions and for the certified reinsurer's obligations subject to § 58-14-11. It shall be a condition to the grant of certification that the certified reinsurer shall have bound itself, by the language of the trust and agreement with the director with principal regulatory oversight of each trust account, to fund upon termination of any trust account, out of the remaining surplus of the trust any deficiency of any other trust account.

Source: SL 2017, ch 211, § 21.

58-14-16.11. Minimum trusteed surplus requirements.

The minimum trusteed surplus requirements are not applicable with respect to a multibeneficiary trust maintained by a certified reinsurer for the purpose of securing obligations incurred under §§ 58-14-16.8 to 58-14-16.13, inclusive, except that the trust shall maintain a minimum trusteed surplus of ten million dollars.

Source: SL 2017, ch 211, § 22.

58-14-16.12. Reduction in allowable credit for insufficient security.

With respect to obligations incurred by a certified reinsurer under §§ 58-14-16.8 to 58-14-16.13, inclusive, if the security is insufficient, the director shall reduce the allowable credit by an amount proportionate to the deficiency and has the discretion to impose further reductions in allowable credit upon finding that there is a material risk the certified reinsurer' s obligations may not be paid in full when due.

Source: SL 2017, ch 211, § 23.

58-14-16.13. Terminated or suspended certification--Inactive status.

A certified reinsurer whose certification has been terminated for any reason shall be treated as a certified reinsurer required to secure one hundred percent of the certified reinsurer's obligations. For the purposes of this section, the term, terminated, means revocation, suspension, voluntary surrender, and inactive status. If the director continues to assign a higher rating as permitted by other provisions regarding certification, this requirement does not apply to a certified reinsurer in inactive status or to a reinsurer whose certification has been suspended.

Source: SL 2017, ch 211, § 24.

58-14-16.14. Applicant for certification certified as reinsurer in National Association of Insurance Commissioners accredited jurisdiction.

If an applicant for certification has been certified as a reinsurer in a National Association of Insurance Commissioners accredited jurisdiction, the director has the discretion to defer to that jurisdiction's certification and has the discretion to defer to the rating assigned by that jurisdiction. Upon approval by the director, the applicant shall be considered to be a certified reinsurer in this state.

Source: SL 2017, ch 211, § 25.

58-14-16.15. Inactive certified reinsurers.

A certified reinsurer that ceases to assume new business in this state may request to maintain the certified reinsurer's certification in inactive status in order to continue to qualify for a reduction in security for the certified reinsurer's in-force business. An inactive certified reinsurer shall continue to comply with all applicable requirements of certification, and the director shall assign a rating that takes into account, if relevant, the reasons why the reinsurer is not assuming new business.

Source: SL 2017, ch 211, § 26.

58-14-16.16. Management and notice requirements regarding ceding insurer's reinsurance recoverables.

A ceding insurer shall take steps to manage the ceding insurer's reinsurance recoverables proportionate to the ceding insurer's own book of business. A domestic ceding insurer shall notify the director within thirty days after reinsurance recoverables from any single assuming insurer, or group of affiliated assuming insurers, exceeds fifty percent of the domestic ceding insurer's last reported surplus to policyholders, or after the ceding insurer determined that reinsurance recoverables from any single assuming insurer, or group of affiliated assuming insurers, is likely to exceed this limit. The notification shall demonstrate the exposure is safely managed by the domestic ceding insurer.

Source: SL 2017, ch 211, § 27.

58-14-16.17. Diversification of ceding insurer's reinsurance program--Notice requirements.

A ceding insurer shall take steps to diversify the ceding insurer's reinsurance program. A domestic ceding insurer shall notify the director within thirty days after ceding to any single assuming insurer, or group of affiliated assuming insurers, more than twenty percent of the ceding insurer's gross written premium in the prior calendar year, or after the ceding insurer has determined that the reinsurance ceded to any single assuming insurer, or group of affiliated assuming insurers, is likely to exceed this limit. The notification shall demonstrate the exposure is safely managed by the domestic ceding insurer.

Source: SL 2017, ch 211, § 28.

58-14-16.18. Qualified United States financial institution defined for purposes of subdivision 58-14-16(3).

For the purposes of subdivision 58-14-16(3), a qualified United States financial institution, means an institution that:

(1)    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 thereof;

(2)    Is regulated, supervised, and examined by United States federal or state authorities having regulatory authority over banks and trust companies; and

(3)    Has been determined by either the director or the Securities Valuation Office of the National Association of Insurance Commissioners to meet the standards of financial condition and standing as are considered necessary and appropriate to regulate the quality of financial institutions whose letters of credit will be acceptable to the director.

Source: SL 2017, ch 211, § 29.

58-14-16.19. Trust agreement conditions for assuming insurers not meeting certain requirements.

If the assuming insurer does not meet the requirements of § 58-14-8, 58-14-9, or 58-14-10, the credit permitted by § 58-14-11 or 58-14-16.1 may not be allowed unless the assuming insurer agrees in the trust agreement to the following conditions:

(1)    Notwithstanding any other provisions in the trust instrument, if the trust fund is inadequate because the trust fund contains an amount less than the amount less than the amount required, 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 director with regulatory oversight over the trust or with an order of court of competent jurisdiction directing the trustee to transfer to the director with regulatory oversight all of the assets of the trust fund;

(2)    The assets shall be distributed by and claims shall be filed with and valued by the director with regulatory oversight in accordance with the laws of the state in which the trust is domiciled that are applicable to the liquidation of domestic insurance companies;

(3)    If the director with regulatory oversight determines that the assets of the trust fund or any part thereof are not necessary to satisfy the claims of the United States ceding insurer of the grantor of the trust, the assets or part thereof shall be returned by the director with regulatory oversight to the trustee for distribution in accordance with the trust agreement; and

(4)    The grantor shall waive any right otherwise available to the grantor under United States law that is inconsistent with this section.

Source: SL 2017, ch 211, § 30.

58-14-16.20. Suspension or revocation of reinsurer' s accreditation or certification.

If an accredited or certified reinsurer ceases to meet the requirements for accreditation or certification, the director may suspend or revoke the reinsurer' s accreditation or certification. The director shall give the reinsurer notice and opportunity for hearing. The suspension or revocation may not take effect until after the director's order on hearing, unless:

(1)    The reinsurer waives the reinsurer's right to hearing;

(2)    The director's order is based on regulatory action by the reinsurer's domiciliary jurisdiction or the volunteer surrender or termination of the reinsurer' s eligibility to transact insurance or reinsurance business in the reinsurer's domiciliary jurisdiction or in the primary certifying state of the reinsurer under § 58-14-16.14; or

(3)    The director finds that an emergency requires immediate action and a court of competent jurisdiction has not stayed the director's action.

Source: SL 2017, ch 211, § 31.

58-14-16.21. Credit for reinsurance during suspension or revocation.

While a reinsurer's accreditation or certification is suspended, no reinsurance contract issued or renewed after the effective date of the suspension qualifies for credit except to the extent that the reinsurer's obligations under the contract are secured in accordance with § 58-14-16. If a reinsurer's accreditation or certification is revoked, no credit for reinsurance may be granted after the effective date of the revocation except to the extent the reinsurer's obligations under the contract are secured in accordance with § 58-14-16 or §§ 58-14-16.8 to 58-14-16.13, inclusive.

Source: SL 2017, ch 211, § 32.

58-14-16.22. Fees.

The fee for each required document included in any application for accreditation, certification or any annual reinsurance filing, or for approval of or amendments to a trust, required by § 58-14-5, 58-14-8, 58-14-9, 58-14-10, 58-14-11, 58-14-13, 58-14-14, or §§ 58-14-16.1 to 58-14-16.3, inclusive, shall be fifty dollars.

Source: SL 2017, ch 211, § 33.

58-14-16.23. Credit for reinsurance for reinsurers in reciprocal jurisdictions--Eligibility requirements.

Credit must be allowed when the reinsurance is ceded to an assuming insurer with its head office or domicile in a reciprocal jurisdiction in compliance with §§ 58-14-16.23 to 58-14-16.34, inclusive. A reciprocal jurisdiction is a jurisdiction that meets one of the following:

(1)    A non-United States jurisdiction subject to an in-force covered agreement with the United States, each within its legal authority, or, in the case of a covered agreement between the United States and European Union, is a member state of the European Union. For purposes of this chapter, a covered agreement is an agreement entered into pursuant to Dodd-Frank Wall Street Reform and Consumer Protection Act, 31 U.S.C. §§ 313 and 314, that is currently in effect or in a period of provisional application and addresses the elimination, under specified conditions, of collateral requirements as a condition for entering into any reinsurance agreement with a ceding insurer domiciled in this state or for allowing the ceding insurer to recognize credit for reinsurance;

(2)    A United States jurisdiction that meets the requirements for accreditation under the NAIC financial standards and accreditation program; or

(3)    A qualified jurisdiction, as determined by the director pursuant to this chapter, that is not otherwise described in subdivisions (1) or (2) of this section and that the director determines meets the following additional requirements:

(a)    Provides that an insurer that has its head office or is domiciled in a qualified jurisdiction is allowed credit for reinsurance ceded to a United States-domiciled assuming insurer in the same manner as credit for reinsurance is allowed for reinsurance assumed by insurers domiciled in a qualified jurisdiction;

(b)    Does not require a United States-domiciled assuming insurer to establish or maintain a local presence as a condition for entering into a reinsurance agreement with any ceding insurer subject to regulation by the non-United States jurisdiction or as a condition to allow the ceding insurer to recognize credit for reinsurance;

(c)    Recognizes the United States state regulatory approach to group supervision and group capital, by providing written confirmation by a competent regulatory authority in a qualified jurisdiction that insurers and insurance groups that are domiciled or maintain their headquarters in this state or another jurisdiction accredited by the NAIC shall be subject only to worldwide prudential insurance group supervision including worldwide group governance, solvency and capital, and reporting by the director or the insurance commissioner of the domiciliary state and will not be subject to group supervision at the level of the worldwide parent undertaking of the insurance or reinsurance group by the qualified jurisdiction; and

(d)    Provides written confirmation by a competent regulatory authority in the qualified jurisdiction that information regarding insurers and their parent, subsidiary, or affiliated entities shall be provided to the director in accordance with a memorandum of understanding or similar document between the director and the qualified jurisdiction, including the International Association of Insurance Supervisors Multilateral Memorandum of Understanding or other multilateral memoranda of understanding coordinated by the NAIC.

Source: SL 2021, ch 211, § 1.

58-14-16.24. Credit for reinsurance for reinsurers in reciprocal jurisdictions--Capital and surplus requirements.

An assuming insurer under § 58-14-16.23 shall have and maintain, on an ongoing basis:

(1)    A license to transact reinsurance by, and have its head office or be domiciled in, a reciprocal jurisdiction;

(2)    Minimum capital and surplus, or its equivalent, calculated on at least an annual basis as of the preceding December thirty-first or at the annual date otherwise statutorily reported to the reciprocal jurisdiction, and confirmed pursuant to subdivision 58-14-16.25(6) according to the methodology of its domiciliary jurisdiction, in the following amounts:

(a)    No less than two hundred fifty million dollars; or

(b)    If the assuming insurer is an association, including incorporated and individual unincorporated underwriters, minimum capital and surplus equivalents net of liabilities or own funds of the equivalent of at least two hundred fifty million dollars and a central fund containing a balance of the equivalent of at least two hundred fifty million dollars; and

(3)    Minimum solvency or capital ratio as follows:

(a)    If the assuming insurer has its head office or is domiciled in a reciprocal jurisdiction as defined in subdivision 58-14-16.23(1), the ratio specified in the applicable covered agreement;

(b)    If the assuming insurer is domiciled in a reciprocal jurisdiction as defined in subdivision 58-14-16.23(2), a risk-based capital ratio of three hundred percent of the authorized control level calculated in accordance with a formula developed by the NAIC and prescribed by the director; or

(c)    If the assuming insurer is domiciled in a reciprocal jurisdiction as defined in subdivision 58-14-16.23(3), after consultation with the reciprocal jurisdiction and considering any recommendations published through the NAIC, such solvency or capital ratio as the director determines to be an effective measure of solvency.

Source: SL 2021, ch 211, § 2.

58-14-16.25. Credit for reinsurance for reinsurers in reciprocal jurisdictions--Adequate assurances required.

An assuming insurer under § 58-14-16.23 shall agree in writing to provide adequate assurance to the director, in a form prescribed by the director, as follows:

(1)    The assuming insurer shall provide prompt written notice and explanation to the director if the assuming insurer falls below the minimum requirements set forth in § 58-14-16.24, or if any regulatory action is taken against the assuming insurer for serious noncompliance with applicable law;

(2)    The assuming insurer shall consent in writing to the jurisdiction of the courts of this state and to the appointment of the director as agent for service of process. The director may require that consent for service of process be provided to the director and included in each reinsurance agreement. Nothing in this subdivision limits or alters the capacity of parties to a reinsurance agreement to agree to alternative dispute resolution mechanisms, except to the extent such agreements are unenforceable under applicable insolvency or delinquency laws;

(3)    The assuming insurer shall consent in writing to pay all final judgments wherever enforcement is sought as obtained by a ceding insurer or its legal successor that have been declared enforceable in the jurisdiction where the judgment was obtained;

(4)    Each reinsurance agreement must include a provision requiring the assuming insurer to provide security in an amount equal to one hundred percent of the assuming insurer's liabilities attributable to reinsurance ceded pursuant to that agreement if the assuming insurer resists enforcement of a final judgment that is enforceable under the law of the jurisdiction in which it was obtained or a properly enforceable arbitration award, whether obtained by the ceding insurer or by its legal successor on behalf of its resolution estate;

(5)    The assuming insurer shall confirm that it is not presently participating in any solvent scheme of arrangement that involves this state's ceding insurers and shall agree to notify the ceding insurer and the director and to provide security in an amount equal to one hundred percent of the assuming insurer's liabilities to the ceding insurer if the assuming insurer enters into such a solvent scheme of arrangement. Such security shall be in a form consistent with the provisions of this chapter. For purposes of this section, the term, solvent scheme of arrangement, means a foreign or alien statutory or regulatory compromise procedure subject to requisite majority creditor approval and judicial sanction in the assuming insurer's home jurisdiction either to finally commute liabilities of duly noticed classed members or creditors of a solvent debtor, or to reorganize or restructure the debts and obligations of a solvent debtor on a final basis, and which may be subject to judicial recognition and enforcement of the arrangement by a governing authority outside the ceding insurer's home jurisdiction; and

(6)    An assuming insurer's supervisory authority shall confirm to the director on an annual basis, as of the preceding December thirty-first or at the annual date otherwise statutorily reported to the reciprocal jurisdiction, that the assuming insurer complies with the requirements of § 58-14-16.24.

Nothing in this section precludes an assuming insurer from providing the director with information on a voluntary basis.

Source: SL 2021, ch 211, § 3.

58-14-16.26. Documents that must be provided to the division.

An assuming insurer under § 58-14-16.23 or its legal successor shall provide, if requested by the director, on behalf of itself and any legal predecessors, the following documentation to the director:

(1)    For the two years preceding entry into the reinsurance agreement and on an annual basis thereafter, the assuming insurer's annual audited financial statements in accordance with the applicable law of the jurisdiction of its head office or domiciliary jurisdiction, including the external audit report;

(2)    For the two years preceding entry into the reinsurance agreement, the solvency and financial condition report or actuarial opinion, if filed with the assuming insurer's supervisor; and

(3)    Prior to entry into the reinsurance agreement and not more than semiannually thereafter:

(a)    An updated list of all disputed and overdue reinsurance claims that are outstanding for ninety days or more regarding reinsurance assumed from ceding insurers domiciled in the United States; and

(b)    Information regarding the assuming insurer's assumed reinsurance by ceding insurer, ceded reinsurance by the assuming insurer, and reinsurance recoverable on paid and unpaid losses by the assuming insurer to allow for the evaluation of the criteria set forth in § 58-14-16.27.

Source: SL 2021, ch 211, § 4.

58-14-16.27. Prompt payment practices.

An assuming insurer under § 58-14-16.23 shall maintain a practice of prompt payment of claims under a reinsurance agreement. The lack of prompt payment is evidenced if any of the following criteria are met:

(1)    More than fifteen percent of the reinsurance recoverables from the assuming insurer are overdue and in dispute as reported to the director;

(2)    More than fifteen percent of the assuming insurer's ceding insurers or reinsurers have overdue reinsurance recoverable on paid losses of ninety days or more that are not in dispute and that exceed one hundred thousand dollars for each ceding insurer or as otherwise specified in a covered agreement; or

(3)    The aggregate amount of reinsurance recoverable on paid losses that are not in dispute but are overdue by ninety days or more exceeds fifty million dollars or as otherwise specified in a covered agreement.

Source: SL 2021, ch 211, § 5.

58-14-16.28. List or reciprocal jurisdictions to be published.

The director shall timely create and publish a list of reciprocal jurisdictions that includes any reciprocal jurisdiction as defined under this chapter. A list of reciprocal jurisdictions is published by the NAIC and the director shall consider any other reciprocal jurisdiction included on the list. The director may approve a jurisdiction that does not appear on the list of reciprocal jurisdictions in accordance with criteria provided in this chapter.

The director may remove a jurisdiction from the list of reciprocal jurisdictions upon a determination that the jurisdiction no longer meets one or more of the requirements of a reciprocal jurisdiction in accordance with § 58-14-16.23. However, the director may not remove from the list a reciprocal jurisdiction as under subdivisions 58-14-16.23(1) and (2). Upon removal of a reciprocal jurisdiction from this list, credit for reinsurance ceded to an assuming insurer that has its home office or is domiciled in that jurisdiction is allowed if otherwise allowed pursuant to this chapter.

Source: SL 2021, ch 211, § 6.

58-14-16.29. List of assuming insurers.

The director shall timely create and publish a list of assuming insurers that have satisfied the conditions set forth in §§ 58-14-16.23 to 58-14-16.34, inclusive, and to which cessions must be granted credit. The director may add an assuming insurer to the list if an NAIC-accredited jurisdiction has added the assuming insurer to its list of assuming insurers or if, upon initial eligibility, the assuming insurer submits the information to the director as required under § 58-14-16.25, except to the extent that submissions conflict with an applicable covered agreement. If an NAIC-accredited jurisdiction has determined that the conditions set forth in §§ 58-14-16.24 to 58-14-16.27, inclusive, have been met, the director has the discretion to defer to that jurisdiction's determination and add such assuming insurer to the list of assuming insurers. The director may accept financial documentation filed with another NAIC-accredited jurisdiction or with the NAIC in satisfaction of the requirements of §§ 58-14-16.24 to 58-14-16.27, inclusive.

When requesting that the director defer to another NAIC-accredited jurisdiction's determination, an assuming insurer shall submit a properly executed form prescribed by the director and other additional information as the director may require. A state that has received such a request will notify other states through the NAIC and provide relevant information with respect to the determination of eligibility.

Source: SL 2021, ch 211, § 7.

58-14-16.30. Assuming insurers that no longer meet one or more requirements.

If the director determines that an assuming insurer no longer meets a requirement under §§ 58-14-16.23 to 58-14-16.34, inclusive, the director may revoke or suspend the eligibility of the assuming insurer.

While an assuming insurer's eligibility is suspended, no reinsurance agreement issued, amended, or renewed after the effective date of the suspension qualifies for credit except to the extent that the assuming insurer's obligations under the contract are secured in accordance with § 58-14-16.

If an assuming insurer's eligibility is revoked, no credit for reinsurance may be granted after the effective date of the revocation with respect to any reinsurance agreements entered into by the assuming insurer, including reinsurance agreements entered into prior to the date of revocation, except to the extent that the assuming insurer's obligations under the contract are secured in a form acceptable to the director and consistent with the provisions of § 58-14-16.

Source: SL 2021, ch 211, § 8.

58-14-16.31. Procedure for denying statement credit.

Before denying statement credit or imposing a requirement to post security under § 58-14-16.30 or adopting any similar requirement that will have substantially the same regulatory impact as security, the director shall:

(1)    Communicate with the ceding insurer, the assuming insurer, and the assuming insurer's supervisory authority that the assuming insurer no longer satisfies one of the conditions listed in §§ 58-14-16.24 to 58-14-16.27, inclusive;

(2)    Provide the assuming insurer with thirty days from the initial communication to submit a plan to remedy the defect and ninety days from the initial communication to remedy the defect, except in exceptional circumstances in which a shorter period is necessary for policyholder and other consumer protection;

(3)    After the expiration of ninety days or less, as set out in subdivision (2) of this section, if the director determines that no or insufficient action was taken by the assuming insurer, the director may impose any of the requirements under §§ 58-14-16.23 to 58-14-16.34, inclusive; and

(4)    Provide a written explanation to the assuming insurer of any of the requirements under §§ 58-14-16.23 to 58-14-16.34, inclusive.

Source: SL 2021, ch 211, § 9.

58-14-16.32. Assuming insurers in receivership.

If subject to a legal process of rehabilitation, liquidation, or conservation, the ceding insurer or its representative may seek and, if determined appropriate by the court in which the proceedings are pending, obtain an order requiring that the assuming insurer post security for all outstanding ceded liabilities.

Source: SL 2021, ch 211, § 10.

58-14-16.33. Effective date for reinsurers in reciprocal jurisdictions.

Credit may be taken under §§ 58-14-16.23 to 58-14-16.34, inclusive, only for reinsurance agreements entered into, amended, or renewed on or after July 1, 2021, and only with respect to losses incurred and reserves reported on or after the later of the date on which the assuming insurer has met all eligibility requirements pursuant to §§ 58-14-16.23 to 58-14-16.27, inclusive, or the effective date of the new reinsurance agreement, amendment, or renewal. Nothing in this section alters or impairs a ceding insurer's right to take credit for reinsurance, to the extent that credit is not available under §§ 58-14-16.23 to 58-14-16.34, inclusive, as long as the reinsurance qualifies for credit under any other applicable provision of this chapter.

Source: SL 2021, ch 211, § 11.

58-14-16.34. Application of reciprocal jurisdiction laws.

Nothing in §§ 58-14-16.23 to 58-14-16.34, inclusive:

(1)    Limits or in any way alters the capacity of parties to a reinsurance agreement to agree on requirements for security or other terms in that reinsurance agreement except as expressly prohibited by this chapter or other applicable law;

(2)    Authorizes an assuming insurer to withdraw or reduce the security provided under any reinsurance agreement except as permitted by the terms of the agreement; or

(3)    Limits or alters the capacity of parties to any reinsurance agreement to renegotiate the agreement.

Source: SL 2021, ch 211, § 12.

58-14-17. Promulgation of rules.

The director may promulgate rules, pursuant to chapter 1-26, concerning requirements, qualifications, and criteria for receiving credit for reinsurance, surplus amounts, accreditation of a reinsurer, certification of a reinsurer, minimum levels for reinsurer capital and surplus, financial rating of reinsurers, recognition and appraisal of qualified jurisdictions, trusts and trust agreements, reinsurance contracts, hazardous investments and evidence of submission to this state's authority, requirements and qualifications for life reinsurance agreements, reserve credits, credits for reinsurance, valuation of assets or reserve credits, the adoption of certain methods and manuals for the valuation of assets, the amount and forms of security supporting reinsurance arrangements, reduction of liability or establishment of assets in a financial statement, circumstances under which credit will be reduced or eliminated, and treatment of existing agreements.

The director may also promulgate rules, pursuant to chapter 1-26, regarding reinsurance relating to life insurance policies with guaranteed nonlevel gross premiums or guaranteed nonlevel benefits, universal life insurance policies resulting in the ability of a policyholder to keep a policy in force over a secondary guarantee period, variable annuities with guaranteed death or living benefits, and long-term care insurance policies. The director may also promulgate rules, pursuant to chapter 1-26, to adopt the use and applicability of the National Association of Insurance Commissioners valuation manual for use in calculating the amounts or form of security to be held by reinsurers.

Source: SL 1992, ch 344, § 11; SL 2017, ch 211, § 11.

58-14-18. Application of reinsurance provisions.

This section applies to all cessions after July 1, 1993, under reinsurance agreements which have had an inception, anniversary, or renewal date not less than six months after July 1, 1993.

Source: SL 1992, ch 344, § 12.

58-14-19. Substantially similar defined.

For the purposes of this chapter, the term, substantially similar, means standards which equal or exceed the standards of this state.

Source: SL 1992, ch 344, § 17.

58-14-20. Disallowal of credit or deduction.

The director may not allow a credit or deduction to the ceding insurer if the director determines the quality, quantity, or diversity of investments in the trust account of a reinsurer or the surplus to policyholders of the reinsurer is hazardous to a ceding insurer or policyholders.

Source: SL 1992, ch 344, § 18.

58-14-21. Reinsurer defined--Examination of reinsurer.

A reinsurer is an insurer that assumes all or part of the insurance or reinsurance written by another insurer and which meets the requirements of this chapter. The director may examine a reinsurer pursuant to chapter 58-3 and costs shall be assessed pursuant to that chapter.

Source: SL 1992, ch 344, § 19.

58-14-22. Application of chapter.

The requirements of this chapter do not apply to a domestic insurer reinsuring companies pursuant to chapter 58-35.

Source: SL 1992, ch 344, § 20.

58-14-23. Qualified United States financial institution defined for eligibility to act as fiduciary of a trust.

A qualified United States financial institution means, for purposes of those provisions of this chapter specifying those institutions that are eligible to act as a fiduciary of a trust, an institution that:

(1)    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 thereof, and has been granted authority to operate with fiduciary powers; and

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

Source: SL 1992, ch 344, § 22; SL 1995, ch 278.

58-14-24. Definition of terms.

Terms used in §§ 58-14-24 to 58-14-42, inclusive, mean:

(1)    "Actuary," any person who is a member in good standing of the American Academy of Actuaries;

(2)    "Controlling person," any person who, directly or indirectly, has the power to direct or cause to be directed the management, control, or activities of the agent or broker who sells, solicits, negotiates, or places reinsurance;

(3)    "Reinsurance agent or agent," any person that has authority to bind or manage all or part of the assumed reinsurance business of a reinsurer, including the management of a separate division, department, or underwriting office, and acts as an agent for the reinsurer whether known as a manager or other similar term;

(4)    "Reinsurance broker or broker," any person, other than an officer or employee of the ceding insurer, who solicits, negotiates, or places reinsurance cessions or retrocessions on behalf of a ceding insurer without the authority or power to bind reinsurance on behalf of the insurer.

Source: SL 1992, ch 345, § 1.

58-14-25. Persons not agents.

The following persons are not agents:

(1)    Any employee of the reinsurer;

(2)    Any United States manager of the United States branch of an alien reinsurer;

(3)    Any underwriting manager who, pursuant to contract, manages all the reinsurance operations of the reinsurer, is under common control with the reinsurer, subject to chapter 58-5A, and whose compensation is not based on the volume of premiums written;

(4)    Any manager of a group, association, pool, or organization of insurers which engage in joint underwriting or joint reinsurance and who is subject to examination by the director or commissioner of the state in which the manager's principal business office is located.

Source: SL 1992, ch 345, § 2.

58-14-26. License required to sell, solicit, negotiate, or place reinsurance.

No person may sell, solicit, negotiate, or place reinsurance without being licensed pursuant to §§ 58-14-24 to 58-14-42, inclusive, to sell, negotiate, solicit, or place reinsurance. The provisions of chapter 58-30 apply to the extent that the provisions are not inconsistent with this chapter.

Source: SL 1992, ch 345, § 3; SL 1994, ch 379, § 1.

58-14-27. Agent or broker bond--Errors and omissions policy.

The director may require an agent or broker under §§ 58-14-24 to 58-14-42, inclusive, to file a bond in an amount acceptable to the director for the protection of the reinsurer or maintain an errors and omissions policy in an amount acceptable to the director, or both.

Source: SL 1992, ch 345, § 4.

58-14-28. Refusal to license--Reasons.

The director may refuse to license an agent or broker in reinsurance if the applicant, any one named on the application, or any member, principal, officer or director of the applicant, is not trustworthy; if any controlling person of the applicant is not trustworthy; if there has been a revocation or suspension of a license; or if the applicant has failed to comply with any prerequisite for the issuance of the license. Upon written request by the applicant, the director shall furnish reasons for the basis of the denial.

Source: SL 1992, ch 345, § 5.

58-14-29. Written contract between agent or broker and insurer or reinsurer.

Any transaction between an agent or broker and the insurer or reinsurer that it represents may only be entered into pursuant to a written contract, specifying the responsibilities of each party. The contract shall, at a minimum, provide that:

(1)    The insurer or reinsurer may terminate the contract for cause upon written notice to the agent or broker. A reinsurer may immediately suspend the authority of the agent or broker to assume or cede business during the pendency of any dispute regarding the cause for termination. Within thirty days of the termination of the contract with an agent or broker, the insurer or reinsurer shall provide written notification of the termination to the director;

(2)    The agent or broker shall render accounts to the insurer and reinsurer accurately detailing all transactions, including information necessary to support all commissions, charges and other fees received by, or owed to, the agent or broker, and remit all funds due to the insurer or reinsurer within thirty days of receipt;

(3)    All funds collected for the insurer's or reinsurer's account shall be held by the agent or broker in a fiduciary capacity in a bank which is a qualified United States financial institution. The agent may retain no more than three months estimated claims payments and allocated loss adjustment expenses. The agent shall maintain a separate bank account for each reinsurer that it represents;

(4)    The agent or broker shall comply with §§ 58-14-30 and 58-14-31;

(5)    The agent or broker shall comply with the written standards established by the insurer or reinsurer for the cession or retrocession of all risks; and

(6)    The broker shall disclose to the insurer any relationship with any reinsurer to which business will be ceded or retroceded.

Source: SL 1992, ch 345, § 6; SL 1994, ch 379, § 2.

58-14-30. Records of reinsurance contracts.

For at least ten years after expiration of each contract of reinsurance transacted by the agent or broker, the agent or broker shall keep a complete record for each transaction showing:

(1)    The type of contract, limits, underwriting restrictions, classes or risks, and territory;

(2)    Period of coverage, including effective and expiration dates, cancellation provisions, and notice required for cancellation. The agent shall also maintain a record of the disposition of outstanding reserves on covered risks;

(3)    Reporting and settlement requirements of balances;

(4)    Rate used to compute the reinsurance premium;

(5)    Names and addresses of reinsurers;

(6)    Rates of all reinsurance commissions, including the commissions on any retrocessions handled by the agent or broker;

(7)    Related correspondence and memoranda;

(8)    Proof of placement;

(9)    Details regarding retrocessions handled by the agent or broker including the identity of retrocessionaires and percentage of each contract assumed or ceded. Retrocessions for the agent are also subject to § 58-14-36;

(10)    Financial records, including but not limited to, premium and loss accounts; and

(11)    When the agent or broker procures a reinsurance contract on behalf of a licensed ceding insurer:

(a)    Directly from any assuming reinsurer, written evidence that the assuming reinsurer has agreed to assume the risk; or

(b)    If placed through a representative of the assuming reinsurer, other than an employee, written evidence that the reinsurer has delegated binding authority to the representative.

Source: SL 1992, ch 345, § 7.

58-14-31. Insurer or reinsurer to employ only licensed agent or broker.

No insurer or reinsurer may engage the services of any person to act as an agent or broker on its behalf unless the person is licensed as required by §§ 58-14-24 to 58-14-42, inclusive, nor employ an individual who is employed by an agent or broker with which it transacts business, unless an agent or broker is under common control with the insurer and subject to chapter 58-5A.

Source: SL 1992, ch 345, § 8.

58-14-32. Approval and filing of contract.

The written contract with the agent, pursuant to § 58-14-29, specifying the responsibilities of each party, shall be approved by the reinsurer's board of directors. At least thirty days before the insurer or reinsurer assumes or cedes business through the agent or broker, the contract in § 58-14-29 shall be filed with the director for approval pursuant to §§ 58-5-85 to 58-5-87, inclusive.

Source: SL 1992, ch 345, § 9.

58-14-33. Additional provisions of contract.

In addition to standards set forth in § 58-14-29, the contract shall provide:

(1)    That the reinsurer and insurer shall have access and the right to copy and audit all accounts and records maintained by the agent or broker related to its business in a form usable by the insurer and reinsurer;

(2)    That the contract cannot be assigned in whole or in part by the agent or broker;

(3)    That the agent or broker shall comply with the written underwriting and rating standards established by the insurer for the acceptance, rejection or cession of all risks;

(4)    That the rates, terms, and purposes of commissions, charges, and other fees which the agent or broker may levy against the reinsurer;

(5)    Whether the agent has the authority to settle claims;

(6)    If the contract provides for a sharing of interim profits by the agent, that interim profits for property business may not be paid until one year after the end of each underwriting period. Interim profits for casualty business may not be paid for five years after the end of each underwriting period or a later period set by the director for specified lines of casualty insurance. No interim profits may be paid for until the adequacy of reserves on remaining claims has been verified pursuant to § 58-14-36;

(7)    That the agent or broker shall annually provide the insurer or reinsurer with a statement of its financial condition prepared by an independent certified accountant;

(8)    That the reinsurer shall at least semi-annually conduct an on-site review of the underwriting and claims processing operations of the agent;

(9)    That the agent shall disclose to the reinsurer any relationship it has with any insurer prior to ceding or assuming any business with the insurer pursuant to the contract; and

(10)    That within the scope of its actual or apparent authority, the acts of the agent or broker shall be deemed to be the acts of the reinsurer or insurer on whose behalf it is acting.

Source: SL 1992, ch 345, § 10.

58-14-34. Handling of reinsurer.

If the contract permits the agent or broker to settle claims on behalf of the reinsurer, the contract shall state the claims shall be handled as follows:

(1)    All claims shall be reported to the reinsurer in a timely manner;

(2)    A copy of the claim file shall be sent to the reinsurer at its request or as soon as it becomes known that the claim:

(a)    Involves a coverage dispute;

(b)    May exceed the agent's claims settlement authority or any amount set in that authority;

(c)    Is open for more than six months; or

(d)    Is closed by payment of the lesser of an amount set by the company.

The director has the authority to initially and at least annually review the amount for settling claims or payment of claims and direct the amount be changed.

(3)    All claim files shall be the joint property of the reinsurer and agent. However, upon an order of liquidation of the reinsurer, files shall become the sole property of the reinsurer or its estate; the agent shall have reasonable access to and the right to copy the files on a timely basis; and

(4)    Any settlement authority granted to the agent may be terminated for cause upon the reinsurer's written notice to the agent or upon the termination of the contract. The reinsurer may suspend the settlement authority during the pendency of the dispute regarding the cause of termination.

Source: SL 1992, ch 345, § 11.

58-14-35. Restrictions on agent.

The agent may not:

(1)    Cede retrocessions on behalf of the reinsurer. However, the agent or broker may cede facultative retrocessions pursuant to obligatory facultative agreements if the contract with the reinsurer contains reinsurance underwriting guidelines for the retrocessions. The guidelines shall include a list of reinsurers with which automatic agreements are in effect, and for each reinsurer, the coverages and amounts or percentages that may be reinsured, and commission schedules;

(2)    Commit the reinsurer to participate in reinsurance syndicates;

(3)    Employing another agent or broker who is not lawfully licensed to transact the type of reinsurance for which he is appointed;

(4)    Without prior approval of the reinsurer, pay or commit the reinsurer to pay a claim, net of retrocessions, that exceeds the lesser of an amount specified by the reinsurer or one percent of the reinsurer's policyholder's surplus as of December thirty-first of the last complete calendar year;

(5)    Collect any payment from a retrocessionaire or commit the reinsurer to any claim settlement with a retrocessionaire, without prior approval of the reinsurer. If prior approval is given, a report shall be promptly forwarded to the reinsurer;

(6)    Appoint a sub-agent; or

(7)    Jointly employ an individual who is employed by the reinsurer unless the agent is under common control with the reinsurer subject to chapter 58-5A.

Source: SL 1992, ch 345, § 12.

58-14-36. Loss reserves--Actuary's opinion--Employee of agent or broker not to be appointed to reinsurer's board of directors.

If an agent or broker establishes loss reserves, the reinsurer shall annually obtain the opinion of an actuary attesting to the adequacy of loss reserves established for losses incurred and outstanding on business produced by the agent. This opinion shall be in addition to any other required loss reserve certification. Binding authority for all retrocessional contracts or participation in reinsurance syndicates shall rest with an officer of the reinsurer who may not be affiliated with an agent or broker. No reinsurer may appoint to its board of directors, any officer, director, employee, controlling shareholder, or sub-producer of its agent or broker; however, this prohibition does not apply to relationships governed by chapter 58-5A or, if applicable, chapter 58-30.

Source: SL 1992, ch 345, § 13.

58-14-37. Examination of agent or broker--Cost.

Any person doing business as an agent or broker under §§ 58-14-24 to 58-14-42, inclusive, is subject to examination by the director. The director shall have access to all books, bank accounts and records of the person in a form usable to the director. Any person contracting with a reinsurer may be examined as if it were the reinsurer. The reinsurer may be required to pay the cost of examination pursuant to § 58-3-15.

Source: SL 1992, ch 345, § 14.

58-14-38. Penalty for violation.

Any agent or broker, insurer or reinsurer found by the director, after a hearing conducted in accordance with chapter 1-26, to be in violation of any provision of §§ 58-14-24 to 58-14-42, inclusive, shall:

(1)    For each separate violation, pay a penalty in an amount not exceeding five thousand dollars;

(2)    Be subject to revocation or suspension of its license; and

(3)    If a violation was committed by the agent or broker, the agent or broker shall make restitution to the insurer, reinsurer, rehabilitator, or liquidator of the insurer or reinsurer for the net losses incurred by the insurer or reinsurer attributable to the violation.

Source: SL 1992, ch 345, § 15.

58-14-39. Rights of third party.

Nothing contained in §§ 58-14-24 to 58-14-42, inclusive, limits or restricts the rights of policyholders, claimants, creditors, or other third parties or confer any rights to those persons.

Source: SL 1992, ch 345, § 16.

58-14-40. Adoption of rules.

The director may adopt rules pursuant to chapter 1-26 for the implementation and administration of the provisions of §§ 58-14-24 to 58-14-42, inclusive.

Source: SL 1992, ch 345, § 17.

58-14-41. Compliance with and application of §§ 58-14-24 to 58-14-42.

No insurer or reinsurer may continue to do business with an agent or broker negotiating, selling, placing or soliciting reinsurance after July 1, 1993, unless the agent or broker is in compliance with §§ 58-14-24 to 58-14-42, inclusive. Sections 58-14-24 to 58-14-42, inclusive, apply to all persons doing insurance business notwithstanding any provision in this title which exempts them from other insurance laws except insurers licensed pursuant to chapter 58-35 which do not have more than one million dollars in direct written premiums and more than one thousand policyholders in any calendar year.

Source: SL 1992, ch 345, § 18.

58-14-42. Qualified United States financial institution.

For the purposes of §§ 58-14-24 to 58-14-42, inclusive, a qualified United States financial institution is an institution that:

(1)    Is organized or licensed under the laws of the United States or any state;

(2)    Is regulated, supervised, and examined by United States federal or state authorities having regulatory authority over banks and trust companies; and

(3)    Has been determined by either the director or the securities valuation office of the National Association of Insurance Commissioners to meet the standards of financial condition and standing as are considered necessary and appropriate to regulate the quality of financial institutions whose letters of credit may be acceptable to the director.

Source: SL 1992, ch 345, § 19.

58-14-43. Restrictions on brokers connected to a firm or association.

No person may act as a broker in this state if the broker maintains an office either directly or as a member or employee of a firm or association, or an officer, director, or employee of a corporation:

(1)    In this state, unless the broker is a licensed producer in this state; or

(2)    In another state, unless the broker is a licensed producer in this state or another state having a law substantially similar to this law or the broker is licensed in this state as a nonresident reinsurance intermediary.

Source: SL 1994, ch 379, § 3.

58-14-44. Restrictions on who may act as agent.

No person, firm, association, or corporation may act as an agent:

(1)    For a reinsurer domiciled in this state, unless the agent is a licensed producer in this state;

(2)    In this state, if the agent maintains an office either directly or as a member or employee of a firm or association, or an officer, director, or employee of a corporation in this state, unless the agent is a licensed producer in this state;

(3)    In another state for a nondomestic insurer, unless the agent is a licensed producer in this state or another state having a law substantially similar to this law or the person is licensed in this state as a nonresident reinsurance intermediary.

Source: SL 1994, ch 379, § 4.