Utah Admin. Code R590-289-5 - Requirements Applicable to a Covered Policy to Obtain Credit for Reinsurance; Opportunity for Remediation

(1) Except as provided in Subsections R590-289-2(4) and R590-289-5(2), credit for reinsurance is allowed with respect to ceded liabilities pertaining to a covered policy if, in addition to all other requirements imposed by law, the following requirements are met on a treaty-by-treaty basis:

(a)

(i) the ceding insurer's statutory policy reserves with respect to the covered policy are established in full and in accordance with the applicable requirements of Title 31A, Chapter 17, Part 5, Standard Valuation Law, and related rules and actuarial guidelines; and

(ii) credit claimed for any reinsurance treaty subject to this rule does not exceed the proportionate share of those reserves ceded under the contract;

(b) the ceding insurer determines the required level of primary security with respect to each reinsurance treaty subject to this rule and provides support for its calculation as determined to be acceptable to the commissioner;

(c) 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 31A-17-404.1 on a funds withheld, trust, or modified coinsurance basis;

(d) 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 pursuant to Subsection (1)(c) are held by or on behalf of the ceding insurer as security under the reinsurance treaty within the meaning of Section 31A-17-404.1;

(e) any trust used to satisfy the requirements of this rule shall comply with all conditions and qualifications of Section R590-173-12, except that:

(i) funds consisting of primary security or other security held in trust will be valued according to the valuation rules set forth in Subsection R590-289-4(2), as applicable;

(ii) there are no affiliate investment limitations with respect to any security held in the trust if the security is not needed to satisfy the requirements of Subsection (1)(c); and

(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 Subsection (1)(c), below 102% of the level required by Subsection (1)(c) at the time of the withdrawal or substitution;

(f) the determination of reserve credit under Subsection R590-173-12(4) shall be determined according to the valuation rules set forth in Subsection R590-289-5(2), as applicable; and

(g) the reinsurance treaty has been approved by the commissioner.

(2)

(a) The requirements of Subsection (1) must be satisfied as of the date that risks under a covered policy are ceded if such date is on or after the effective date of this rule and on an ongoing basis thereafter.

(b) Under no circumstances will a ceding insurer take or consent to any action or series of actions that would result in a deficiency under Subsection (1)(c) or (1)(d) with respect to any reinsurance treaty under which a covered policy has been ceded, and if 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.

(c) Before the due date of each quarterly or annual statement, each life insurance company that has ceded reinsurance within the scope of this rule shall perform an analysis, on a treaty-by-treaty basis, to determine, as to each reinsurance treaty under which a covered policy has been ceded, whether as of the end of the immediately preceding calendar quarter, or valuation date, the requirements of Subsections (1)(c) and (1)(d) were satisfied.

(d) 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 pursuant to Subsection (1)(c) unless:

(i) the requirements of Subsections (1)(c) and (1)(d) were satisfied as of the valuation date as to such reinsurance treaty; or

(ii) the 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, as the case may be, in the amount and in the form as would have caused the requirements of Subsections (1)(c) and (1)(d) to be fully satisfied as of the valuation date.

(e) Nothing in Subsection (1)(b) may be construed to allow a ceding company to maintain any deficiency under Subsection (1)(c) or (1)(d) for any period of time longer than is reasonably necessary to eliminate it.

Notes

Utah Admin. Code R590-289-5

Adopted by Utah State Bulletin Number 2022-23, effective 11/22/2022