760 IAC 1-56-10 - Trust agreements qualified under section 9 of this rule
Authority: IC 27-1-3-7; IC 27-6-10.1-5
Affected: IC 27-6-10.1-4
Sec. 10.
(a) The
following definitions apply throughout this section:
(1) "Beneficiary" means the entity for whose
sole benefit the trust has been established and any successor of the
beneficiary by operation of law. If a court of law appoints a successor in
interest to the named beneficiary, then the named beneficiary includes and is
limited to the court appointed domiciliary receiver (including conservator,
rehabilitator, or liquidator).
(2)
"Grantor" means the entity that has established a trust for the sole benefit of
the beneficiary. When established in conjunction with a reinsurance agreement,
the grantor is the unlicensed, unaccredited assuming insurer.
(3) "Obligations", as used in subsection
(b)(11), means the following:
(A) Reinsured
losses and allocated loss expenses paid by the ceding insurer, but not
recovered from the assuming insurer.
(B) Reserves for the following:
(i) Reinsured losses reported and
outstanding.
(ii) Reinsured losses
incurred but not reported.
(iii)
Allocated reinsured loss expenses and unearned premiums.
(b) The following are
required conditions:
(1) The trust agreement
shall be entered into between the beneficiary, the grantor, and the trustee,
which shall be a qualified United States financial institution as defined in IC
27-6-10.1-4.
(2) The trust
agreement shall create a trust account into which assets shall be
deposited.
(3) All assets in the
trust account shall be held by the trustee at the trustee's office in the
United States.
(4) The trust
agreement shall provide that:
(A) the
beneficiary shall have the right to withdraw assets from the trust account at
any time, without notice to the grantor, subject only to written notice from
the beneficiary to the trustee;
(B)
no other statement or document is required to be presented in order to withdraw
assets except that the beneficiary may be required to acknowledge receipt of
withdrawn assets;
(C) it is not
subject to any conditions or qualifications outside of the trust agreement;
and
(D) it shall not contain
references to any other agreements or documents except as provided for under
subdivisions (11) and (12).
(5) The trust agreement shall be established
for the sole benefit of the beneficiary.
(6) The trust agreement shall require the
trustee to do the following:
(A) Receive
assets and hold all assets in a safe place.
(B) Determine that all assets are in such
form that the beneficiary, or the trustee upon direction by the beneficiary,
may whenever necessary negotiate any such assets, without consent or signature
from the grantor or any other person or entity.
(C) Furnish to the grantor and the
beneficiary a statement of all assets in the trust account upon its inception
and at intervals no less frequently than the end of each calendar
quarter.
(D) Notify the grantor and
the beneficiary within ten (10) days of any deposits to or withdrawals from the
trust account. (E) Upon written demand of the beneficiary, immediately take any
and all steps necessary to transfer absolutely and unequivocally all right,
title, and interest in the assets held in the trust account to the beneficiary
and deliver physical custody of the assets to the beneficiary.
(F) Allow no substitutions or withdrawals of
assets from the trust account, except on written instructions from the
beneficiary except that the trustee may, without the consent of but with notice
to the beneficiary, upon call or maturity of any trust asset, withdraw such
asset upon condition that the proceeds are paid into the trust
account.
(7) The trust
agreement shall provide that at least thirty (30) days, but not more than
forty-five (45) days, prior to termination of the trust account, written
notification of termination shall be delivered by the trustee to the
beneficiary.
(8) The trust
agreement shall be made subject to and governed by the laws of the state in
which the trust is domiciled.
(9)
The trust agreement shall prohibit invasion of the trust corpus for the purpose
of paying compensation to, or reimbursing the expenses of, the trustee. In
order for a letter of credit to qualify as an asset of the trust, the trustee
shall have the right and the obligation pursuant to the deed of trust or some
other binding agreement (as duly approved by the commissioner), to immediately
draw down the full amount of the letter of credit and hold the proceeds in
trust for the beneficiaries of the trust if the letter of credit will otherwise
expire without being renewed or replaced.
(10) The trust agreement shall provide that
the trustee shall be liable for its own negligence, willful misconduct, or lack
of good faith. The failure of the trustee to draw against the letter of credit
in circumstances where such draw would be required shall be deemed to be
negligence or willful misconduct, or both.
(11) Notwithstanding other provisions of this
rule, when a trust agreement is established in conjunction with a reinsurance
agreement covering risks other than life, annuities, and accident and health,
where it is customary practice to provide a trust agreement for a specific
purpose, such a trust agreement may, notwithstanding any other conditions in
this rule, provide that the ceding insurer shall undertake to use and apply
amounts drawn upon the trust account, without diminution because of the
insolvency of the ceding insurer or the assuming insurer, for any of the
following purposes:
(A) To pay or reimburse
the ceding insurer for the assuming insurer's share under the specific
reinsurance agreement regarding any losses and allocated loss expenses paid by
the ceding insurer, but not recovered from the assuming insurer, or for
unearned premiums due to the ceding insurer if not otherwise paid by the
assuming insurer.
(B) To make
payment to the assuming insurer of any amounts held in the trust account that
exceed one hundred two percent (102%) of the actual amount required to fund the
assuming insurer's obligations under the specific reinsurance
agreement.
(C) Where the ceding
insurer has received notification of termination of the trust account and where
the assuming insurer's entire obligations under the specific reinsurance
agreement remain unliquidated and undischarged for ten (10) days prior to the
termination date, to withdraw amounts equal to the obligations and deposit
those amounts in a separate account, in the name of the ceding insurer in any
qualified United States financial institution as defined in IC 27-6-10.14 apart
from its general assets, in trust for such uses and purposes specified in
clauses (A) and (B) as may remain executory after such withdrawal and for any
period after the termination date.
(12) Notwithstanding other provisions of this
rule, when a trust agreement is established to meet the requirements of section
9 of this rule in conjunction with a reinsurance agreement covering life,
annuities, or accident and health risks, where it is customary to provide a
trust agreement for a specific purpose, the trust agreement may provide that
the ceding insurer shall undertake to use and apply amounts drawn upon the
trust account, without diminution because of the insolvency of the ceding
insurer or the assuming insurer, only for any of the following purposes:
(A) To pay or reimburse the ceding insurer
for the assuming insurer's share under the specific reinsurance agreement of:
(i) premiums returned, but not yet recovered
from the assuming insurer, to the owners of policies reinsured under the
reinsurance agreement on account of cancellations of the policies;
and
(ii) surrenders and benefits or
losses paid by the ceding insurer, but not yet recovered from the assuming
insurer, under the terms and provisions of the policies reinsured under the
reinsurance agreement.
(B) To pay to the assuming insurer amounts
held in the trust account in excess of the amount necessary to secure the
credit or reduction from liability for reinsurance taken by the ceding
insurer.
(C) Where the ceding
insurer has received notification of termination of the trust and where the
assuming insurer's entire obligations under the specific reinsurance agreement
remain unliquidated and undischarged ten (10) days prior to the termination
date, to withdraw amounts equal to the assuming insurer's share of liabilities,
to the extent that the liabilities have not yet been funded by the assuming
insurer, and deposit those amounts in a separate account, in the name of the
ceding insurer in any qualified U.S. financial institution apart from its
general assets, in trust for the uses and purposes specified in clauses (A) and
(B) as may remain executory after withdrawal and for any period after the
termination date.
(13)
Either the reinsurance agreement or the trust agreement must stipulate that
assets deposited in the trust account shall be valued according to their
current fair market value and shall consist only of cash in United States
dollars, certificates of deposit issued by a United States bank and payable in
United States dollars, and investments permitted by IC 27 or any combination of
the above, provided investments in or issued by an entity controlling,
controlled by, or under common control with either the grantor or the
beneficiary of the trust shall not exceed five percent (5%) of total
investments. The agreement may further specify the types of investments to be
deposited. If the reinsurance agreement covers life, annuities, or accident and
health risks, then the provisions required by this subdivision must be included
in the reinsurance agreement.
(c) The following are permitted conditions:
(1) The trust agreement may provide that the
trustee may resign upon delivery of a written notice of resignation, effective
not less than ninety (90) days after receipt by the beneficiary and grantor of
the notice and that the trustee may be removed by the grantor by delivery to
the trustee and beneficiary of the written notice of removal, effective not
less than ninety (90) days after receipt by the trustee and the beneficiary of
the notice, provided that no such resignation or removal shall be effective
until a successor trustee has been duly appointed and approved by the
beneficiary and the grantor and all assets in the trust have been duly
transferred to the new trustee.
(2)
The grantor may have the full and unqualified right to vote any shares of stock
in the trust account and to receive from time to time payments of any dividends
or interest upon any shares of stock or obligations included in the trust
account. Any such interest or dividend shall be either forwarded promptly upon
receipt to the grantor or deposited in a separate account established in the
grantor's name.
(3) The trustee may
be given authority to invest, and accept substitutions of, any funds in the
account, provided that no investment or substitution shall be made without
prior approval of the beneficiary unless the trust agreement specifies
categories of investments acceptable to the beneficiary and authorizes the
trustee to invest funds and to accept substitutions that the trustee determines
are at least equal in market value to the assets withdrawn and that are
consistent with the restrictions in subsection (d)(1)(B).
(4) The trust agreement may provide that the
beneficiary may at any time designate a party to which all or part of the trust
assets are to be transferred. Such transfer may be conditioned upon the trustee
receiving, prior to or simultaneously, other specified assets.
(5) The trust agreement may provide that,
upon termination of the trust account, all assets not previously withdrawn by
the beneficiary shall, with written approval by the beneficiary, be delivered
over to the grantor.
(d)
The following are additional conditions applicable to reinsurance agreements:
(1) A reinsurance agreement, which is entered
into in conjunction with a trust agreement and the establishment of a trust
account, may contain provisions that do the following:
(A) Require the assuming insurer to enter
into a trust agreement and to establish a trust account for the benefit of the
ceding insurer, specifying what the agreement is to cover.
(B) Require the assuming insurer, prior to
depositing assets with the trustee, to execute assignments or endorsements in
blank, or to transfer legal title to the trustee of all shares, obligations, or
any other assets requiring assignments, in order that the ceding insurer, or
the trustee upon the direction of the ceding insurer, may whenever necessary
negotiate these assets without consent or signature from the assuming insurer
or any other entity.
(C) Require
that all settlements of account between the ceding insurer and the assuming
insurer be made in cash or its equivalent.
(D) Stipulate that the assuming insurer and
the ceding insurer agree that the assets in the trust account, established
pursuant to the provisions of the reinsurance agreement, may be withdrawn by
the ceding insurer at any time, notwithstanding any other provisions in the
reinsurance agreement, and shall be utilized and applied by the ceding insurer
or its successors in interest by operation of law, including, without
limitation, any liquidator, rehabilitator, receiver, or conservator of such
company, without diminution because of insolvency on the part of the ceding
insurer or the assuming insurer, only for the following purposes:
(i) To reimburse the ceding insurer for the
assuming insurer's share of premiums returned, but not yet recovered from the
assuming insurer, to the owners of policies reinsured under the reinsurance
agreement because of cancellations of such policies.
(ii) To reimburse the ceding insurer for the
assuming insurer's share of surrenders and benefits or losses paid by the
ceding insurer pursuant to the provisions of the policies reinsured under the
reinsurance agreement.
(iii) To pay
or reimburse the ceding insurer for any other amounts necessary to secure the
credit or reduction from liability for reinsurance taken by the ceding
insurer.
(iv) To make payment to
the assuming insurer of amounts held in the trust account in excess of the
amount necessary to secure the credit or reduction from liability for
reinsurance taken by the ceding insurer.
(2) The reinsurance agreement may also
contain provisions that do the following:
(A)
Give the assuming insurer the right to seek approval from the ceding insurer to
withdraw from the trust account all or any part of the trust assets and
transfer those assets to the assuming insurer, provided:
(i) the assuming insurer shall, at the time
of 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 withdrawal and transfer, the
market value of the trust account is not less than one hundred two percent
(102%) of the required amount.
The ceding insurer shall not unreasonably or arbitrarily withhold its approval.
(B) Provide for the return of any amount
withdrawn in excess of the actual amounts required for subdivision (1)(D) and
for interest payments at a rate not in excess of the prime rate of interest on
such amounts.
(C) Permit the award
by any arbitration panel or court of competent jurisdiction of:
(i) interest at a rate different from that
provided in clause (B);
(ii) court
or arbitration costs;
(iii)
attorney's fees; and
(iv) any other
reasonable expenses.
(3) A trust agreement may be used to reduce
any liability for reinsurance ceded to an unauthorized assuming insurer in
financial statements required to be filed with the department of insurance in
compliance with this rule when established on or before the date of filing of
the financial statement of the ceding insurer. Further, the reduction for the
existence of an acceptable trust account may be up to the current fair market
value of acceptable assets available to be withdrawn from the trust account at
that time, but such reduction shall be no greater than the specific obligations
under the reinsurance agreement that the trust account was established to
secure.
(4) Notwithstanding the
effective date of this rule, any trust agreement or underlying reinsurance
agreement in existence prior to December 31, 2013, will continue to be
acceptable until December 31, 2014, at which time the agreements will have to
be in full compliance with this rule for the trust agreement to be
acceptable.
(5) The failure of any
trust agreement to specifically identify the beneficiary as defined in
subsection (a)(1) shall not be construed to affect any actions or rights that
the commissioner of the department of insurance may take or possess pursuant to
the provisions of the laws of this state.
Notes
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