N.Y. Comp. Codes R. & Regs. tit. 11 § 126.5

Current through Register Vol. 46, No. 53, December 31, 2024

Section 126.5 - Additional conditions applicable to reinsurance agreements

(a) A reinsurance agreement, which is entered into in conjunction with a trust agreement and the establishment of a trust account, must contain provisions that:

(1) require the reinsurer to enter into a trust agreement and to establish a trust account for the benefit of the reinsured, and specifying what recoverables and/or reserves such agreement is to cover;

(2) stipulate that assets deposited in the trust account shall be valued according to their current fair market value, and shall consist only of cash (United States legal tender), certificates of deposit (issued by a United States bank and payable in United States legal tender), and investments of the types specified in paragraphs (1), (2), (3), (8) and (10) of subsection (a) of section 1404 of the New York Insurance Law, provided that such investments are issued by an institution that is not the parent, subsidiary or affiliate of either the grantor or the beneficiary. The reinsurance agreement may further specify the types of investments to be deposited. Where a trust agreement is entered into in conjunction with a reinsurance agreement covering risks other than life, annuities and accident and health, then such trust agreement may contain the provisions required by this paragraph in lieu of including such provisions in the reinsurance agreement;

(3) require the reinsurer, prior to depositing assets with the trustee, to execute assignments, endorsements in blank, or transfer legal title to the trustee of all shares, obligations or any other assets requiring assignments, in order that the ceding company, or the trustee upon the direction of the ceding company, may whenever necessary negotiate any such assets without consent or signature from the reinsurer or any other entity;

(4) require that all settlements of account between the ceding company and the reinsurer be made in cash or its equivalent; and

(5) stipulate that the reinsurer and the ceding company agree that the assets in the trust account, established pursuant to the provisions of the reinsurance agreement, may be withdrawn by the ceding company at any time, notwithstanding any other provisions in the reinsurance agreement, and shall be utilized and applied by the ceding company or any successor by operation of law of the ceding company, including, without limitation, any liquidator, rehabilitator, receiver or conservator of such company, without diminution because of insolvency on the part of the ceding company or the reinsurer, only for the following purposes:

(i) to reimburse the ceding company for the reinsurer's share of premiums returned to the owners of policies reinsurer under the reinsurance agreement on account of cancellations of such policies;

(ii) to reimburse the ceding company for the reinsurer's share of surrenders and benefits or losses paid by the ceding company pursuant to the provisions of the policies reinsured under the reinsurance agreement;

(iii) to fund an account with the ceding company in an amount at least equal to the deduction, for reinsurance ceded, from the ceding company's liabilities for policies ceded under the agreement. Such account shall include, but not be limited to, amounts for policy reserves, reserves for claims and losses incurred (including losses incurred but not reported), loss adjustment expenses, and unearned premiums; and

(iv) to pay any other amounts the ceding company claims are due under the reinsurance agreement.

(b) The reinsurance agreement may contain provisions that:

(1) give the reinsurer the right to seek approval from the ceding company to withdraw from the aforementioned trust account all or any part of the assets contained therein and transfer such assets to the reinsurer, provided:

(i) the reinsurer shall, at the time of such withdrawal, replace the withdrawn assets with other qualified assets having a market value equal to the market value of the assets withdrawn so as to maintain at all times the deposit in the required amount; or

(ii) after such withdrawals and transfer, the market value of the trust account is no less than 102 percent of the required amount.

The ceding company shall be the sole judge as to the application of this provision, but shall not unreasonably nor arbitrarily withhold its approval;

(2) provide for:

(i) the return of any amount withdrawn in excess of the actual amounts required for subparagraphs (a)(5)(i)-(iii) of this section or, in the case of subparagraph (a)(5)(iv), any amounts that are subsequently determined not to be due; and

(ii) interest payments, at a rate not in excess of the prime rate of interest, on the amounts held pursuant to subparagraph (a)(5)(iii) of this section; and

(3) permit the award, by any arbitration panel or court of competent jurisdiction, of:

(i) interest at a rate different from that provided in subparagraph (2)(ii) of this subdivision;

(ii) court or arbitration costs;

(iii) attorney's fees; and

(iv) any other reasonable expenses.

N.Y. Comp. Codes R. & Regs. Tit. 11 § 126.5