Section 646.35 - Continuation of coverage(1) SCOPE. This section applies to the following contracts when subject to this chapter: (b) Life insurance and supplementary contracts providing for retained asset accounts.(c) Disability insurance.(3) INSURER IN LIQUIDATION. (am) If an insurer that is subject to this chapter is in liquidation, the fund shall, subject to s. 646.31(2), do either of the following:1. Guarantee, assume, or reinsure, or cause to be guaranteed, assumed, or reinsured, the policies of the insolvent insurer within the scope of this section.2. Assure performance of the contractual obligations of the insurer on such policies.(bm) Whether the fund's duties under par. (am) are discharged by the fund under par. (am) 1. or 2. is at the fund's discretion. The fund shall provide moneys, pledges, loans, notes, guarantees, or other means reasonably necessary to discharge the duties under par. (am) 1. or 2.(4) CLAIMS AGAINST LIQUIDATOR. The fund has a claim against the liquidator for reasonable payments made to discharge its duties under this section. If the fund and the liquidator disagree regarding the reasonableness of such payments, either may apply to the court to determine the question. Such payments shall have the same priority as the class of claims under s. 645.68(3).(5) RATE INCREASES. The fund may increase any rates or premiums on policies during continuation of coverage under sub. (3) (am) 2. to the extent the policies permit the insurer to increase the rates or premiums. If the fund determines that the rates or premiums on policies that do not permit an increase or the rates or premiums as increased to the extent permitted by the policies are inadequate under s. 625.11(3), the fund may offer the policyholders the option of terminating the coverage or continuing the coverage at adequate rates or premiums as determined by the fund.(6) LIMITATIONS. In performing its duties under this section:(a) In the case of an annuity contract, the fund may limit its performance to payment of the then current value of the loss claim under s. 645.68(3) as of the date of the order of liquidation, with interest to the date of payment, in lieu of the requirements of sub. (3).(b) In the case of a disability insurance policy that is neither guaranteed renewable nor noncancelable, the fund is not obligated to continue the policy in force beyond 30 days after the date the order of liquidation is entered, or 30 days after the date established in the liquidation order of another state, but may continue the coverage under any disability insurance policy for up to 180 days after the date of the liquidation order.(bm) For coverages continued pursuant to par. (b), the fund may substitute a comprehensive health insurance policy for a health maintenance organization policy that is subject to sub. (3), and increase rates or premiums for the substituted coverage as provided in sub. (5).(c) In the case of a life insurance or annuity contract, the fund is not obligated to perform the responsibilities set forth in sub. (3) with respect to either of the following: 1. Any benefit payment liability, arising on or after the date of entry of the order of liquidation, to the extent that the rate of interest on which it is based or the interest rate, crediting rate, or similar factor determined by use of an index or other external reference stated in the policy or contract and employed in calculating returns or changes in value exceeds the rate of interest, which may not be less than zero, determined by subtracting 3 percentage points from the monthly corporate bond yield average, as most recently published by Moody's investors service or its successor.2. Any benefit payment liability, arising before the date of entry of the order of liquidation, to the extent that the payment exceeds the rate of interest, which may not be less than zero, determined by subtracting 2 percentage points from the monthly corporate bond yield average, as published by Moody's investors service or its successor, when averaged over the 4-year period ending on the date of entry of the order of liquidation or averaged over such lesser period if the contract was issued less than 4 years before that date.(7) EXCLUSION FOR COVERAGE UNDER ANOTHER FUND.(a) Notwithstanding s. 646.31(9), the fund shall not provide coverage under this section to any person who, directly or indirectly, has coverage under any other state's security fund statutes.(b) In determining whether par. (a) applies in a situation in which a person could potentially be covered by security funds of more than one state, par. (a) shall be construed in conjunction with other states' laws in such a manner as to result in coverage for the person by only one security fund.(8) REINSURANCE. (a) In this subsection, "coverage date" means the date on which the fund becomes responsible for the obligations of an insolvent insurer.(b) At any time within one year after the coverage date, the fund may elect to succeed to the insolvent insurer's rights and obligations that accrue on or after the coverage date and that relate to contracts covered, in whole or in part, by the fund under one or more indemnity reinsurance agreements entered into by the insolvent insurer as a ceding insurer and selected by the fund. The election shall be effected by a notice to the liquidator and to any affected reinsurer. The fund may not exercise an election under this paragraph with respect to a reinsurance agreement that the liquidator has expressly disaffirmed.(c) With respect to each indemnity reinsurance agreement for which the fund makes an election under par. (b): 1. The fund shall be responsible for all unpaid premiums under the agreement, for periods both before and after the coverage date, and for the performance of all other obligations to be performed under the agreement after the coverage date, that relate in each case to contracts covered, in whole or in part, by the fund. The fund may charge contracts covered in part by the fund, through reasonable allocation methods, for the costs of reinsurance in excess of the obligations of the fund.2. The fund is entitled to any amounts payable by the reinsurer under the agreement with respect to losses or events that occur in periods after the coverage date and that relate to contracts or contractual obligations covered, in whole or in part, by the fund. Upon receipt of any such amounts, the fund must pay to the beneficiary under the policy or contract on account of which the amounts were paid, the amount by which the benefits paid by the fund on account of the policy or contract less the retention of the insolvent insurer applicable to the loss or event is exceeded by the amount received by the fund.3. Within 30 days after the election, the fund and the indemnity reinsurer must calculate the net balance due to or from the fund under the agreement as of the date of the election, giving full credit to all items paid by the insolvent insurer, the insurer's liquidator, and the indemnity reinsurer between the coverage date and the date of the election. The fund or the indemnity reinsurer shall pay the net balance due to the other within 5 days after the calculation is completed. The liquidator shall remit to the fund as promptly as practicable any amounts received by the liquidator that are due the fund under subd. 2.4. If, within 60 days of the election, the fund pays all premiums due for periods both before and after the coverage date that relate to contracts covered, in whole or in part, by the fund, the reinsurer may not terminate the agreement insofar as it relates to contracts covered, in whole or in part, by the fund and may not set off against amounts due the fund any unpaid premium due for periods before the coverage date.(d) If the fund transfers its obligations to another insurer and the fund and other insurer agree, unless the fund has previously expressly determined in writing that it will not exercise an election under par. (b), the other insurer succeeds to the rights and obligations of the fund under pars. (b) and (c), regardless of whether the fund has exercised an election under par. (b). If the other insurer succeeds to the fund's rights and obligations under pars. (b) and (c): 1. The indemnity reinsurance agreements automatically terminate for new reinsurance, unless the indemnity reinsurer and the other insurer agree to the contrary.2. On and after the date on which an indemnity reinsurance agreement is transferred to the other insurer, the fund is no longer obligated to pay beneficiaries the amounts specified in par. (c) 2. with respect to that agreement.(e) This subsection supersedes s. 645.58(1), any applicable rules of the commissioner, and the provisions of any affected reinsurance agreement that provide for or require payment of reinsurance proceeds to the liquidator of the insolvent insurer on account of losses or events that occur after the coverage date. The liquidator remains entitled to any amounts payable by the reinsurer under the reinsurance agreement with respect to losses or events that occur before the coverage date, subject to any applicable setoff provisions.(f) Nothing in this subsection, except as expressly provided in this subsection: 1. Alters or modifies the terms or conditions of the indemnity reinsurance agreements of the insolvent insurer.2. Abrogates or limits any rights of any reinsurer to rescind a reinsurance agreement.3. Gives a policy owner or beneficiary an independent cause of action against an indemnity reinsurer that is not otherwise set forth in the indemnity reinsurance agreement.(9) COVERAGE OBLIGATIONS. Notwithstanding sub. (3), in performing its obligations to provide coverage under this section, the fund is not required to guarantee, assume, reinsure, or perform, or cause to be guaranteed, assumed, reinsured, or performed, the contractual obligations of an insolvent insurer under a covered policy or contract that do not materially affect the economic values or economic benefits of the covered policy or contract.(10) BOARD DETERMINATIONS. The board shall have discretion to determine the means by which the fund may economically and efficiently provide benefits under this section. If the board has arranged or offered to provide benefits to a person under a plan or arrangement that fulfills the fund's obligations under this section, the person is not entitled to any benefits from the fund in addition to or other than those provided under the plan or arrangement.1979 c. 109; 1983 a. 120; 1985 a. 216; 1989 a. 23; 1995 a. 236; 2003 a. 261; 2005 a. 253; 2007 a. 168, 170; 2011 a. 224.