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
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