S 471 Session 109 (1991-1992)
S 0471 General Bill, By Saleeby, Land, McConnell, M.F. Mullinax and T.H. Pope
A Bill to amend the Code of Laws of South Carolina, 1976, by adding Sections
38-9-200, 38-9-210, and 38-9-220 so as to provide reinsurance credits and
liability reductions allowed for domestic ceded insurers and to define terms;
to amend Section 38-9-170, relating to unearned premium reserves of insurers,
so as to revise the circumstances under which deductions may be made from
reserves; and to amend Section 38-9-190, relating to loss and claim reserves
of insurers, so as to revise the circumstances under which credit for
reinsurance is allowed as an asset or a deduction from reserves.
01/15/91 Senate Introduced and read first time SJ-9
01/15/91 Senate Referred to Committee on Banking and Insurance
A BILL
TO AMEND THE CODE OF LAWS OF SOUTH CAROLINA, 1976,
BY ADDING SECTIONS 38-9-200, 38-9-210, AND 38-9-220 SO AS
TO PROVIDE REINSURANCE CREDITS AND LIABILITY
REDUCTIONS ALLOWED FOR DOMESTIC CEDED INSURERS
AND TO DEFINE TERMS; TO AMEND SECTION 38-9-170,
RELATING TO UNEARNED PREMIUM RESERVES OF INSURERS,
SO AS TO REVISE THE CIRCUMSTANCES UNDER WHICH
DEDUCTIONS MAY BE MADE FROM RESERVES; AND TO
AMEND SECTION 38-9-190, RELATING TO LOSS AND CLAIM
RESERVES OF INSURERS, SO AS TO REVISE THE
CIRCUMSTANCES UNDER WHICH CREDIT FOR REINSURANCE
IS ALLOWED AS AN ASSET OR A DEDUCTION FROM
RESERVES.
Be it enacted by the General Assembly of the State of South Carolina:
SECTION 1. The 1976 Code is amended by adding:
"Section 38-9-200. (A) Credit for reinsurance must be
allowed a domestic ceding insurer as an asset or a deduction from
liability on account of reinsurance ceded only when the reinsurer meets
the requirements of subsections (B), (C), (D), (E), or (F). If meeting the
requirements of subsection (D) or (E), the requirements of subsection
(G) must be met also.
(B) Credit must be allowed when the reinsurance is ceded to an
assuming insurer which is licensed to transact insurance or reinsurance
in this State or approved as a reinsurer by the Chief Insurance
Commissioner provided by Section 38-5-60.
(C) Credit must be allowed when the reinsurance is ceded to an
assuming insurer which is accredited as a reinsurer in this State. An
accredited reinsurer is one which:
(1) files with the commissioner evidence of its submission to
this state's jurisdiction;
(2) submits to this state's authority to examine its books and
records;
(3) is licensed to transact insurance or reinsurance in at least
one state, or for a United States branch of an alien assuming insurer is
entered through and licensed to transact insurance or reinsurance, in at
least one state;
(4) pays an initial submission fee of four hundred dollars and
annually pays a four hundred fee by March first;
(5) files annually with the commissioner a copy of its annual
statement filed with the insurance department of its state of domicile and
a copy of its most recent audited financial statement and:
(a) maintains a surplus as regards policyholders of not less
than twenty million dollars and whose accreditation has not been denied
by the commissioner within ninety days of its submission; or
(b) maintains a surplus as regards policyholders of not less
than twenty million dollars and whose accreditation has been approved
by the commissioner.
No credit is allowed a domestic ceding insurer if the assuming
insurer's accreditation has been revoked by the commissioner after
notice and hearing.
(D) Credit must be allowed when the reinsurance is ceded to an
assuming insurer which is domiciled and licensed in, or for a United
States branch of an alien assuming insurer is entered through, a state
which employs standards regarding credit for reinsurance substantially
similar to those applicable under this statute, and the assuming insurer
or United States branch of an alien assuming insurer:
(1) maintains a surplus as regards policyholders of not less
than twenty million dollars;
(2) submits to the authority of this State to examine its books
and records.
However, the requirement of item (1) does not apply to reinsurance
ceded and assumed pursuant to pooling arrangements among insurers in
the same holding company system.
(E)(1) Credit must be allowed when the reinsurance is ceded to an
assuming insurer which maintains a trust fund in a qualified United
States financial institution, defined in Section 38-9-220(B), for the
payment of the valid claims of its United States policyholders and
ceding insurers and their assigns and successors in interest. The
assuming insurer shall report annually to the commissioner information
substantially the same as that required to be reported on the National
Association of Insurance Commissioners annual statement form by
licensed insurers to enable the commissioner to determine the
sufficiency of the trust fund. For a single assuming insurer, the trust
must consist of a trusteed account representing the assuming insurer's
liabilities attributable to business written in the United States and, in
addition, the assuming insurer shall maintain a trusteed surplus of not
less than twenty million dollars. For a group of individual
unincorporated underwriters, the trust must consist of a trusteed account
representing the group's liabilities attributable to business written in the
United States and, in addition, the group shall maintain a trusteed
surplus of which one hundred million dollars must be held jointly for the
benefit of United States ceding insurers of a member of the group. The
group shall make available to the commissioner an annual certification
of the solvency of each underwriter by the group's domiciliary regulator
and its independent public accountants.
(2) For a group of incorporated insurers under common
administration which complies with the filing requirements contained in
item (1), has transacted continuously an insurance business outside the
United States for at least three years immediately before making
application for accreditation, submits to this state's authority to examine
its books and records and bears the expense of the examination, and has
aggregate policyholders' surplus of ten billion dollars, the trust must be
in an amount equal to the group's several liabilities attributable to
business ceded by United States ceding insurers to a member of the
group pursuant to reinsurance contracts issued in the name of the group.
The group also shall maintain a joint trusteed surplus of which one
hundred million dollars must be held jointly for the benefit of United
States ceding insurers of a member of the group as additional security
for liabilities. Each member of the group shall make available to the
commissioner an annual certification of the member's solvency by the
member's domiciliary regulator and its independent public accountant.
(3) The trust must be established in a form approved by the
commissioner. The trust instrument must provide that contested claims
must be valid and enforceable upon the final order of a court of
competent jurisdiction in the United States. The trust must vest legal
title to its assets in the trustees of the trust for its United States
policyholders and ceding insurers and their assigns and successors in
interest. The trust and the assuming insurer are subject to examination
determined by the commissioner. The trust must remain in effect for as
long as the assuming insurer has outstanding obligations due under the
reinsurance agreements subject to the trust.
(4) No later than February 28 each year the trustees of the trust
shall report to the commissioner in writing setting forth the balance of
the trust and listing the trust's investments at the preceding year end and
shall certify the date of termination of the trust, if so planned, or certify
that the trust may not expire before the next following December 31.
(F) Credit must be allowed when the reinsurance is ceded to an
assuming insurer not meeting the requirements of subsection (B), (C),
(D), or (E) but only with respect to the insurance of risks located in
jurisdictions where the reinsurance is required by applicable law or
regulation of that jurisdiction.
(G) If the assuming insurer is not licensed or accredited to transact
insurance or reinsurance in this State, the credit permitted by subsections
(D) and (E) must not be allowed unless the assuming insurer agrees in
the reinsurance agreements:
(1) that when the assuming insurer fails to perform its
obligations under the terms of the reinsurance agreement, the assuming
insurer, at the request of the ceding insurer, shall submit to the
jurisdiction of a court of competent jurisdiction in a state of the United
States, comply with all requirements necessary to give the court
jurisdiction, and abide by the final decision of the court or of an
appellate court in an appeal;
(2) to designate the commissioner or a designated attorney as
its true and lawful attorney upon whom may be served lawful process in
an action, a suit, or a proceeding instituted by or on behalf of the ceding
company.
This subsection does not conflict with or override the obligation of
the parties to a reinsurance agreement to arbitrate their disputes if an
obligation is created in the agreement.
(H) The commissioner may promulgate regulations to implement
the provisions of this section and Section 38-9-210.
Section 38-9-210. A reduction from liability for the reinsurance
ceded by a domestic insurer to an assuming insurer not meeting the
requirements of Section 38-9-200 must be allowed in an amount not
exceeding the liabilities carried by the ceding insurer. The reduction
must be in the amount of funds held by or on behalf of the ceding
insurer, including funds held in trust for the ceding insurer, under a
reinsurance contract with the assuming insurer as security for the
payment of obligations, if the security is held in the United States
subject to withdrawal solely by and under the exclusive control of the
ceding insurer or, for a trust, held in a qualified United States financial
institution, defined in Section 38-9-220(B). This security may be in the
form of:
(1) cash;
(2) securities listed by the Securities Valuation Office of the
National Association of Insurance Commissioners and qualifying as
admitted assets under Section 38-11-100;
(3) clean, irrevocable, unconditional letters of credit issued or
confirmed by a qualified United States financial institution defined in
Section 38-9-220(A) no later than December 31st of the year for which
filing is being made and in the possession of the ceding company on or
before the filing date of its annual statement. Letters of credit meeting
applicable standards of issuer acceptability as of the dates of their
issuance or confirmation, notwithstanding the issuing or confirming
institution's subsequent failure to meet applicable standards of issuer
acceptability, continue to be acceptable as security until their expiration,
extension, renewal, modification, or amendment, whichever first occurs.
(4) other form of security acceptable to the commissioner.
Section 38-9-220. (A) For purposes of Section 38-9-210, a
`qualified United States financial institution' means an institution that:
(1) is organized or, for a United States office of a foreign
banking organization, licensed under the laws of the United States or its
state;
(2) is regulated, supervised, and examined by federal or state
authorities having regulatory authority over banks and trust companies;
(3) has been determined by the commissioner or the Securities
Valuation Office of the National Association of Insurance
Commissioners to meet standards of financial condition and standing
necessary and appropriate to regulate the quality of financial institutions
whose letters of credit are acceptable to the commissioner.
(B) For purposes of those provisions of this law specifying those
institutions that are eligible to act as a fiduciary of a trust, a `qualified
United States financial institution' means an institution that is:
(1) organized or, for a United States branch or agency office
of a foreign banking organization, licensed under the laws of the United
States or its states and has been granted authority to operate with
fiduciary powers;
(2) regulated, supervised, and examined by federal or state
authorities having regulatory authority over banks and trust
companies."
SECTION 2. Section 38-9-170 of the 1976 Code is amended to read:
"Section 38-9-170. (1) Every (A) An
insurer authorized to transact business in this State shall, except
as to risks or policies for which reserves are required under subsections
(2) (B) and (3) of this section (C) and
Section 38-9-180 except for real estate title insurance policies, and
subject to specific provisions of this title, shall maintain
reserves equal to the unearned portions of the gross premiums charged
on unexpired or unterminated risks and policies.
No deduction may be made from the reserves required by this
section except for the reserves on risks reinsured: (a) With solvent
assuming insurers licensed in this State or approved reinsurers as
provided by Section 38-5-60; or (b) With an insurer not so licensed in
an amount which, together with the amount of the credit for claim loss
reserves allowed under Section 38-9-190, does not exceed the funds
withheld under a reinsurance treaty with the unlicensed insurer as
security for the payment of obligations thereunder if the funds are held
subject to withdrawal by and are under the control of the ceding insurer.
Notwithstanding any other provision of this title the Commissioner may
by official order or regulation prescribe the conditions by which a ceding
insurer may be allowed credit as an asset or as a deduction from reserves
for reinsurance ceded to a reinsurer not licensed in this State but for
which reinsurer, upon the request of the Commissioner, there is
presented evidence satisfactory to him that the reinsurer meets the
standards of solvency required in this State. Credit for
reinsurance is allowed a ceding insurer as a deduction from reserves
required by this section only as provided in Section 38-9-200 or 38-9-210.
(2)(a)(B)(1) With reference to insurance against
loss or damage to property except as provided in item (e) of this
subsection, (5) and with reference to all general casualty
insurance and surety insurance, every insurer shall maintain an
unearned premium reserve on all policies in force.
(b)(2) The commissioner may require that these
reserves are equal to the unearned portions of the gross premiums in
force as computed on each respective risk from the policy's date of issue.
If the commissioner does not so require, the portions of the gross
premium in force to be held as premium reserve must be computed
according to the following table:
Term for Which Reserved for
Policy was Written Unearned Premium
1 year or less 1/2
2 years 1st year 3/4
2nd year 1/4
3 years 1st year 5/6
2nd year 1/2
3rd year 1/6
4 years 1st year 7/8
2nd year 5/8
3rd year 3/8
4th year 1/8
5 years 1st year 9/10
2nd year 7/10
3rd year 1/2
4th year 3/10
5th year 1/10
Over 5 years pro rata.
(c)(3) All of these reserves may be computed,
at the option of the insurer, on a yearly or more frequent pro rata basis.
(d)(4) After adopting a method for computing
the reserve, an insurer may not change methods without the
commissioner's approval.
(e)(5) With reference to marine insurance,
premiums on trip risks not terminated are considered unearned, and the
commissioner may require the insurer to carry a reserve thereon
equal to one hundred percent on trip risks written during the month
ended as of the date of statement. (3) For all accident and
health policies the insurer shall maintain an active life reserve which
places a sound value on its liabilities under these policies and which is
not less than the reserve according to standards set forth in regulations
issued by the commissioner and, in no event, not less,
in the aggregate, than the pro rata gross unearned premium reserves for
these policies."
SECTION 3. Section 38-9-190 of the 1976 Code is amended to read:
"Section 38-9-190. Every A company
authorized to transact insurance in this State shall maintain reserves in
an amount estimated in the aggregate as being sufficient to provide for
the payment of all losses or claims arising by the date of any
an annual or other statement, whether reported or unreported,
which are unpaid as of that date and for which the insurer may be
liable, and also reserves in an amount estimated to provide for
the expenses of adjustment or settlement of these claims.
The reserves for unpaid losses and loss expenses under policies of
personal injury liability insurance, employer's liability insurance, and
workers' compensation insurance must be calculated in accordance with
any regulations the commissioner prescribes, and
every. A company authorized to write these kinds
of insurance shall file with its annual statement schedules of its
experience thereon in the form the commissioner requires.
Every company may receive credit for reinsurance recoverable (a)
from an insurer licensed to transact that insurance in this State or
approved as a reinsurer by the Commissioner as provided by Section
38-5-60 in the full amount thereof or (b) from an insurer not so licensed
in an amount not exceeding the funds withheld under a reinsurance
treaty with the unlicensed company as security for the payment of
obligations thereunder if the funds are held subject to withdrawal by and
are under the control of the ceding company.
Notwithstanding any other provision of this title, the Commissioner
may by official order or regulation prescribe the conditions under which
a ceding insurer may be allowed credit as an asset or a deduction from
loss reserves for claims recoverable from a reinsurer not licensed in this
State but for which reinsurer, upon the request of the Commissioner,
there is presented evidence satisfactory to him that the reinsurer meets
the standards of solvency required in this State.
If the loss experience of an insurer shows that its loss reserves,
however estimated, are inadequate, the Commissioner shall require the
insurer to maintain loss reserves in an increased amount as is needed to
make them adequate.
Credit for reinsurance is allowed a ceding insurer as an asset
or a deduction from reserves required by this section only as provided
in Section 38-9-200 or 38-9-210."
SECTION 4. Sections 38-9-200 through 38-9-220 apply to insurance
cessions after the effective date of this act under reinsurance agreements
which have an inception anniversary or renewal date not less than six
months after the effective date of this act.
SECTION 5. This act takes effect upon approval by the Governor.
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