31 Pa. Code § 90j.7 - Requirements applicable to covered policies to obtain credit for reinsurance; opportunity for remediation

(a) Requirements. Subject to the exemptions described in § 90j.5 (relating to exemptions) and the provisions of subsection (b), credit for reinsurance shall be allowed with respect to ceded liabilities pertaining to covered policies under section 319.1(b) of The Insurance Company Law of 1921 (40 P.S. § 442.1(b)) only if, in addition to all other requirements imposed by law or regulation, all of the following requirements are met on a treaty-by-treaty basis:

(1) The ceding insurer's statutory policy reserves with respect to the covered policies are established in full and in accordance with the applicable requirements of 40 Pa.C.S. §§ 7101-7151 (relating to reserve liabilities) and its related regulations and actuarial guidelines. Credit claimed for any reinsurance treaty subject to this chapter may not exceed the proportionate share of those reserves ceded under the contract.

(2) The ceding insurer determines the required level of primary security with respect to each reinsurance treaty subject to this chapter and provides support for its calculation in a manner acceptable to the Commissioner.

(3) Funds consisting of primary security, in an amount at least equal to the required level of primary security, are held by or on behalf of the ceding insurer, as security under the reinsurance treaty within the meaning of section 319.1 of The Insurance Company Law of 1921 on a funds withheld, trust or modified coinsurance basis.

(4) Funds consisting of other security, in an amount at least equal to any portion of the statutory reserves as to which primary security is not held under paragraph (3), are held by or on behalf of the ceding insurer as security under the reinsurance treaty within the meaning of section 319.1 of The Insurance Company Law of 1921.

(5) A trust used to satisfy the requirements of this section shall comply with all of the conditions and qualifications of Chapter 163 (relating to requirements for funds held as security for the payment of obligations of unlicensed, unqualified reinsurers), subject to the following:

(i) Funds consisting of primary security or other security held in trust, shall for the purposes identified in § 90j.6(b) (relating to actuarial method), be valued according to the valuation rules set forth in § 90j.6(b), as applicable.

(ii) There may not be any affiliate investment limitations with respect to any security held in trust if the security is not needed to satisfy the requirements of paragraph (3).

(iii) The reinsurance treaty must prohibit withdrawals or substitutions of trust assets that would leave the fair market value of the primary security within the trust, when aggregated with primary security outside the trust that is held by or on behalf of the ceding insurer in the manner required by paragraph (3), below 102% of the level required by paragraph (3) at the time of the withdrawal or substitution.

(iv) The determination of reserve credit under Chapter 163 shall be determined according to the valuation rules set forth in § 90j.6(b), as applicable.

(6) The reinsurance treaty has been approved by the Commissioner.

(b) Requirements at inception date and on an on-going basis; remediation.

(1) The requirements of subsection (a) must be satisfied as of the date that risks under covered policies are ceded if the date is on or after the effective date of this chapter and on an ongoing basis thereafter, subject to all of the following:

(i) Under no circumstances shall a ceding insurer take or consent to any action or series of actions that would result in a deficiency under subsection (a)(3) or (4) with respect to any reinsurance treaty under which covered policies have been ceded.

(ii) In the event that a ceding insurer becomes aware at any time that a deficiency exists, it shall use its best efforts to arrange for the deficiency to be eliminated as expeditiously as possible.

(2) Prior to the due date of each quarterly or annual statement, each life insurance company that has ceded reinsurance within the scope of § 90j.4 (relating to applicability) shall perform an analysis, on a treaty-by-treaty basis, to determine, as to each reinsurance treaty under which covered policies have been ceded, whether, as of the end of the immediately preceding calendar quarter, the requirements of subsection (a)(3) and (4) were satisfied. The following apply:

(i) The ceding insurer shall establish a liability equal to the excess of the credit for reinsurance taken over the amount of primary security actually held under paragraph (3), as follows unless:

(A) The requirements of subsection (a)(3) and (4) were fully satisfied as of the valuation date as to the reinsurance treaty.

(B) A deficiency has been eliminated before the due date of the quarterly or annual statement to which the valuation date relates through the addition of primary security or other security, or both, in the amount and in the form as would have caused the requirements of subsection (a)(3) and (4) to be fully satisfied as of the valuation date.

(3) Nothing in paragraph (2) may be construed to allow a ceding company to maintain a deficiency under subsection (a)(3) or (4) for any period of time longer than is reasonably necessary to eliminate it.

Notes

31 Pa. Code § 90j.7

This section cited in 31 Pa. Code § 90j.6 (relating to actuarial method).