H 3896 Session 112 (1997-1998)
H 3896 General Bill, By Kirsh
A BILL TO AMEND SECTION 38-9-200, AS AMENDED, CODE OF LAWS OF SOUTH CAROLINA,
1976, RELATING TO CAPITAL, SURPLUS, RESERVES, AND OTHER FINANCIAL MATTERS
REGARDING INSURANCE COMPANIES, REINSURANCE CREDITS, AND LIABILITY REDUCTIONS,
SO AS TO REVAMP THE SECTION BY DELETING CERTAIN PROVISIONS AND LANGUAGE AND BY
ADDING PROVISIONS THAT PROVIDE, AMONG OTHER THINGS, THAT THE ASSUMING INSURER
SHALL SUBMIT TO EXAMINATION OF ITS BOOKS AND RECORDS BY THE DIRECTOR OF THE
DEPARTMENT OF INSURANCE AND BEAR THE EXPENSE OF THE EXAMINATION, THAT CREDIT
FOR REINSURANCE SHALL NOT BE GRANTED UNLESS THE FORM OF THE TRUST AND ANY
AMENDMENTS TO THE TRUST HAVE BEEN APPROVED BY THE INSURANCE COMMISSIONER OF
THE STATE WHERE THE TRUST IS DOMICILED OR THE INSURANCE COMMISSIONER OF
ANOTHER STATE WHO, PURSUANT TO THE TERMS OF THE TRUST AGREEMENT, HAS ACCEPTED
PRINCIPAL REGULATORY OVERSIGHT OF THE TRUST, THAT THE FORM OF THE TRUST AND
ANY TRUST AMENDMENTS MUST BE FILED WITH THE INSURANCE COMMISSIONER OR EVERY
STATE IN WHICH CEDING INSURER BENEFICIARIES OF THE TRUST ARE DOMICILED, THAT
THE TRUST FUND FOR A SINGLE ASSUMING INSURER SHALL CONSIST OF FUNDS IN TRUST
IN AN AMOUNT NOT LESS THAN THE ASSUMING INSURER'S LIABILITIES ATTRIBUTABLE TO
REINSURANCE CEDED BY UNITED STATES CEDING INSURERS, AND THAT THE ASSUMING
INSURER SHALL MAINTAIN A TRUSTEED SURPLUS OF NOT LESS THAN TWENTY MILLION
DOLLARS.
04/10/97 House Introduced and read first time HJ-59
04/10/97 House Referred to Committee on Labor, Commerce and
Industry HJ-59
03/18/98 House Committee report: Favorable with amendment Labor,
Commerce and Industry HJ-9
03/19/98 House Amended HJ-29
03/19/98 House Read second time HJ-39
03/19/98 House Unanimous consent for third reading on next
legislative day HJ-39
03/20/98 House Read third time and sent to Senate HJ-4
03/24/98 Senate Introduced and read first time SJ-7
03/24/98 Senate Referred to Committee on Banking and Insurance SJ-7
05/13/98 Senate Recalled from Committee on Banking and Insurance SJ-16
05/20/98 Senate Read second time SJ-36
05/21/98 Senate Read third time and enrolled SJ-9
06/02/98 Senate Recalled from Legislative Council SJ-15
06/02/98 Senate Reconsidered SJ-15
06/02/98 Senate Recommitted to Committee on Banking and Insurance SJ-15
Indicates Matter Stricken
Indicates New Matter
RECALLED
May 13, 1998
H. 3896
Introduced by Rep. Kirsh
S. Printed 5/13/98--S.
Read the first time March 24, 1998.
A BILL
TO AMEND SECTION 38-9-200, AS AMENDED, CODE OF
LAWS OF SOUTH CAROLINA, 1976, RELATING TO CAPITAL,
SURPLUS, RESERVES, AND OTHER FINANCIAL MATTERS
REGARDING INSURANCE COMPANIES, REINSURANCE
CREDITS, AND LIABILITY REDUCTIONS, SO AS TO REVAMP
THE SECTION BY DELETING CERTAIN PROVISIONS AND
LANGUAGE AND BY ADDING PROVISIONS THAT PROVIDE,
AMONG OTHER THINGS, THAT THE ASSUMING INSURER
SHALL SUBMIT TO EXAMINATION OF ITS BOOKS AND
RECORDS BY THE DIRECTOR OF THE DEPARTMENT OF
INSURANCE AND BEAR THE EXPENSE OF EXAMINATION,
THAT CREDIT FOR REINSURANCE SHALL NOT BE
GRANTED UNLESS THE FORM OF THE TRUST AND ANY
AMENDMENTS TO THE TRUST HAVE BEEN APPROVED BY
THE INSURANCE COMMISSIONER OF THE STATE WHERE
THE TRUST IS DOMICILED OR THE INSURANCE
COMMISSIONER OF ANOTHER STATE WHO, PURSUANT TO
THE TERMS OF THE TRUST AGREEMENT, HAS ACCEPTED
PRINCIPAL REGULATORY OVERSIGHT OF THE TRUST,
THAT THE FORM OF THE TRUST AND ANY TRUST
AMENDMENTS MUST BE FILED WITH THE INSURANCE
COMMISSIONER OF EVERY STATE IN WHICH CEDING
INSURER BENEFICIARIES OF THE TRUST ARE DOMICILED,
THAT THE TRUST FUND FOR A SINGLE ASSUMING
INSURER SHALL CONSIST OF FUNDS IN TRUST IN AN
AMOUNT NOT LESS THAN THE ASSUMING INSURER'S
LIABILITIES ATTRIBUTABLE TO REINSURANCE CEDED BY
UNITED STATES CEDING INSURERS, AND THAT THE
ASSUMING INSURER SHALL MAINTAIN A TRUSTEED
SURPLUS OF NOT LESS THAN TWENTY MILLION DOLLARS.
Be it enacted by the General Assembly of the State of South
Carolina:
SECTION 1. The purpose of Section 38-9-200 of the 1976 Code
is to protect the interests of insureds, claimants, ceding insurers,
assuming insurers, and the public generally. The General Assembly
declares that its intent in enacting this code section is to ensure
adequate regulation of insurers and reinsurers and adequate
protection for those to whom they owe obligations. In furtherance of
this state interest, the General Assembly provides a mandate that
upon the insolvency of a non-U.S. insurer or reinsurer that provides
security to fund its United States obligations in accordance with this
code section, the assets representing the security must be maintained
in the United States and claims must be filed with and valued by the
state insurance regulator with regulatory oversight, and the assets
shall be distributed in accordance with the insurance laws of the state
in which the trust is domiciled that are applicable to the liquidation
of domestic United States insurance companies. The General
Assembly declares that the matters contained in this code section are
fundamental to the business of insurance in accordance with 15
U.S.C. Sections 1011 and 1012.
SECTION 2. Section 38-9-200 of the 1976 Code, as amended by
Act 370 of 1994, is further amended to read:
"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 subsection (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 director or
designee 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 director or designee 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 dollar fee by March first;
(5) files annually with the director or designee 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 director or designee within ninety days of its
submission; or
(b) maintains a surplus as regards policyholders of less
than twenty million dollars and whose accreditation has been
approved by the director or designee. No credit is allowed a
domestic ceding insurer if the assuming insurer's accreditation has
been revoked by the director or designee 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 director or his designee
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 director or his
designee 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 including incorporated and 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 incorporated members of the group must not be
engaged in any business other than underwriting as a member of the
group and are subject to the same level of solvency regulation and
control by the group's domiciliary regulator as are the unincorporated
members. The group shall make available to the director or his
designee 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 director or designee 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 director or designee. 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 director or designee. 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 twenty-eighth each year the
trustees of the trust shall report to the director or designee 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 thirty-first.
(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 director or designee 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 director may promulgate regulations to implement
the provisions of this section and Section 38-9-210.
(A) Credit for reinsurance shall be allowed a domestic ceding
insurer as an asset or a reduction from liability on account of
reinsurance ceded only when the reinsurer meets the requirements of
subsection (B), (C), (D), (E), or (F). Credit only shall be allowed
under subsections (B), (C), or (D) of this section as respects cessions
of those kinds or classes of business which the assuming insurer is
licensed or otherwise permitted to write or assume in its state of
domicile or, in the case of a United States branch of a alien assuming
insurer, in the state through which it is entered and licensed to
transact insurance or reinsurance. If meeting the requirements of
subsection (D) or (E), the requirements of subsection (G) also shall
be met.
(B) Credit shall 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 director or
designee provided by Section 38-5-60.
(C) Credit shall 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 director or designee 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 dollar fee by March first;
(5) files annually with the director or designee 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 director or designee within ninety days of its
submission; or
(b) maintains a surplus as regards policyholders of less than
twenty million dollars and whose accreditation has been approved by
the director or designee. No credit is allowed a domestic ceding
insurer if the assuming insurer's accreditation has been revoked by
the director or designee after notice and hearing.
(D)(1) Credit shall be allowed when the reinsurance is ceded to an
assuming insurer that is domiciled in, or in the case of a U.S. branch
of an alien assuming insurer is entered through, a state that employs
standards regarding credit for reinsurance substantially similar to
those applicable under this statute and the assuming insurer or U.S.
branch of an alien assuming insurer:
(a) maintains a surplus as regards policyholders in an amount
not less than $20,000,000 and
(b) submits to the authority of this State to examine its books
and records.
(2) The requirement of Section (D)(1)(a) does not apply to
reinsurance ceded and assumed pursuant to pooling arrangements
among insurers in the same holding company system.
(E)(1) Credit shall 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 ceding insurers and
their assigns and successors in interest. To enable the director to
determine the sufficiency of the trust fund, the assuming insurer shall
report annually to the director or his designee information
substantially the same as that required to be reported on the National
Association of Insurance Commissioners annual statement form by
licensed insurers. The assuming insurer shall submit to examination
of its books and records by the director and bear the expense of
examination.
(2)(a) Credit for reinsurance shall not be granted under this
subsection (E) unless the form of the trust and any amendments to the
trust have been approved by:
(i) the insurance commissioner of the state where the trust
is domiciled; or
(ii) the insurance commissioner of another state who,
pursuant to the terms of the trust instrument, has accepted principal
regulatory oversight of the trust.
(b) The form of the trust and any trust amendments also shall
be filed with the commissioner of every state in which the ceding
insurer beneficiaries of the trust are domiciled. The trust instrument
shall provide that contested claims shall 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 assets in the trustees of the
trust for the benefit of the assuming insurers' United States ceding
insurers, and their assigns and successors in interest. The trust and
the assuming insurer are subject to examination as determined by the
director or his designee.
(c) The trust shall remain in effect for as long as the assuming
insurer has outstanding obligations due under the reinsurance
agreements subject to the trust. No later than February twenty-eighth
of each year the trustees of the trust shall report to the director or
designee 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 thirty-first.
(3) The following requirements apply to the following
categories of assuming insurers:
(a) The trust fund for a single assuming insurer consists of
funds in trust in an amount not less than the assuming insurer's
liabilities attributable to reinsurance ceded by United States ceding
insurers, and in addition, the assuming insurer shall maintain a
trusteed surplus of not less than twenty million dollars.
(b)(i) In the case of a group including incorporated and
individual unincorporated underwriters:
(I) For reinsurance ceded under reinsurance agreements
with an inception, amendment, or renewal date on or after August 1,
1995, the trust consists of a trusteed account in an amount not less
than the group's several liabilities attributable to business ceded by
United States domiciled ceding insurers to any member of the group;
(II) For reinsurance ceded under reinsurance agreements
with an inception date on or before July 31, 1995, and not amended
or renewed after that date, notwithstanding the other provisions of
this section, the trust consists of a trusteed account in an amount not
less than the group's several insurance and reinsurance liabilities
attributable to business written in the United States; and
(III) In addition to these trusts, the group shall maintain
in trust a trusteed surplus of which one hundred million dollars is
held jointly for the benefit of the United States domiciled ceding
insurers of any member of the group for all years of account; and
(ii) The incorporated members of the group shall not be
engaged in any business other than underwriting as a member of the
group and shall be subject to the same level of regulation and
solvency control by the group's domiciliary regulator as are the
unincorporated members.
(iii) The group, within ninety days after its financial
statements are due to be filed with the group's domiciliary regulator,
shall provide to the director an annual certification by the group's
domiciliary regulator of the solvency of each underwriter member or
if a certification is unavailable, financial statements prepared by
independent public accountants of each underwriter member of the
group.
(c) In the case of a group of incorporated underwriters under
common administration, the group shall:
(i) have continuously transacted an insurance business
outside the United States for at least three years immediately before
making application for accreditation;
(ii) maintain aggregate policyholders' surplus of at least ten
billion dollars;
(iii) maintain a trust fund in an amount not less than the
group's several liabilities attributable to business ceded by United
States domiciled ceding insurers to any member of the group
pursuant to reinsurance contracts issued in the name of the group;
(iv) in addition, maintain a joint trusteed surplus of which
one hundred million dollars must be held jointly for the benefit of
United States domiciled ceding insurers of any member of the group
as additional security for these liabilities; and
(v) within ninety days after its financial statements are due
to be filed with the group's domiciliary regulator, make available to
the director an annual certification of each underwriter member's
solvency by the member's domiciliary regulator and financial
statements of each underwriter member of the group prepared by its
independent public accountant.
(F) Credit shall be allowed when the reinsurance is ceded to an
assuming insurer not meeting the requirements of subsections (B),
(C), (D), or (E) but only as 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) shall 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 director or designee 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) If the assuming insurer does not meet the requirements of
subsections (B), (C), or (D), the credit permitted by subsection (E)
shall not be allowed unless the assuming insurer agrees in the trust
agreements to the following conditions:
(1) Notwithstanding any other provisions in the trust instrument,
if the trust fund is inadequate because it contains an amount less than
the amount required by subsection (E)(3), or if the grantor of the trust
has been declared insolvent or placed into receivership, rehabilitation,
liquidation, or similar proceedings under the laws of its state or
country of domicile, the trustee shall comply with an order of the
commissioner with regulatory oversight over the trust or with an
order of a court of competent jurisdiction directing the trustee to
transfer to the commissioner with regulatory oversight all of the
assets of the trust fund.
(2) The assets shall be distributed by and claims shall be filed
with and valued by the commissioner with regulatory oversight in
accordance with the laws of the state in which the trust is domiciled
that are applicable to the liquidation of domestic insurance
companies.
(3) If the commissioner with regulatory oversight determines
that the assets of the trust fund or any part of them are not necessary
to satisfy the claims of the United States ceding insurers of the
grantor of the trust, the assets or part of them shall be returned by the
commissioner with regulatory oversight to the trustee for distribution
in accordance with the trust agreement.
(4) The grantor shall waive any right otherwise available to it
under United States law that is inconsistent with this provision.
(I) The director may promulgate regulations to implement the
provisions of this section and Section 38-9-210."
SECTION 3. Section 38-9-210 of the 1976 Code, as amended by
Section 535 of Act 181 of 1993, is further amended to read:
"Section 38-9-210. A An asset or 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 thirty-first of the year
for which filing is being made and in the possession of, or in trust
for, 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; or
(4) other form of security acceptable to the director or
designee."
SECTION 4. This act takes effect upon approval by the Governor.
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