S*1212 Session 112 (1997-1998)
S*1212(Rat #0433, Act #0422 of 1998) General Bill, By Saleeby and McConnell
A BILL TO AMEND SECTION 38-9-200, AS AMENDED, CODE OF LAWS OF SOUTH CAROLINA,
1976, RELATING TO INSURANCE, CAPITAL, SURPLUS, RESERVES, AND OTHER FINANCIAL
MATTERS, AND REINSURANCE CREDITS, AND LIABILITY REDUCTIONS, SO AS TO, AMONG
OTHER THINGS, PROVIDE THAT CREDIT FOR REINSURANCE SHALL BE ALLOWED A DOMESTIC
CEDING INSURER 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
AN ALIEN ASSUMING INSURER, IN THE STATE THROUGH WHICH IT IS ENTERED AND
LICENSED TO TRANSACT INSURANCE OR REINSURANCE; AND TO AMEND SECTION 38-9-210,
AS AMENDED, RELATING TO REDUCTION FROM LIABILITIES FOR REINSURANCE, SO AS TO,
AMONG OTHER THINGS, ADD "ASSET" TO "REDUCTION FROM LIABILITY" WITH RESPECT TO
THE REINSURANCE CEDED BY A DOMESTIC INSURER TO AN ASSUMING INSURER NOT MEETING
THE REQUIREMENTS OF SECTION 38-9-200 HAVING TO BE ALLOWED IN AN AMOUNT NOT
EXCEEDING THE LIABILITIES CARRIED BY THE CEDING INSURER.-AMENDED TITLE
04/23/98 Senate Introduced, read first time, placed on calendar
without reference SJ-2
04/29/98 Senate Amended SJ-50
04/29/98 Senate Read second time SJ-50
04/30/98 Senate Read third time and sent to House SJ-29
05/05/98 House Introduced and read first time HJ-11
05/05/98 House Referred to Committee on Labor, Commerce and
Industry HJ-12
05/20/98 House Committee report: Favorable Labor, Commerce and
Industry HJ-81
05/26/98 House Debate adjourned until Wednesday, May 27, 1998 HJ-23
05/27/98 House Read second time HJ-28
05/28/98 House Read third time and enrolled HJ-14
06/04/98 Ratified R 433
06/10/98 Signed By Governor
07/07/98 Effective date 06/10/98
07/07/98 Copies available
07/07/98 Act No. 422
(A422, R433, S1212)
AN ACT TO AMEND SECTION 38-9-200, AS AMENDED, CODE
OF LAWS OF SOUTH CAROLINA, 1976, RELATING TO
INSURANCE, CAPITAL, SURPLUS, RESERVES, AND OTHER
FINANCIAL MATTERS, AND REINSURANCE CREDITS, AND
LIABILITY REDUCTIONS, SO AS TO, AMONG OTHER THINGS,
PROVIDE THAT CREDIT FOR REINSURANCE SHALL BE
ALLOWED A DOMESTIC CEDING INSURER 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 AN ALIEN
ASSUMING INSURER, IN THE STATE THROUGH WHICH IT IS
ENTERED AND LICENSED TO TRANSACT INSURANCE OR
REINSURANCE; AND TO AMEND SECTION 38-9-210, AS
AMENDED, RELATING TO REDUCTION FROM LIABILITIES FOR
REINSURANCE, SO AS TO, AMONG OTHER THINGS, ADD ASSET
TO "REDUCTION FROM LIABILITY" WITH RESPECT TO THE
REINSURANCE CEDED BY A DOMESTIC INSURER TO AN
ASSUMING INSURER NOT MEETING THE REQUIREMENTS OF
SECTION 38-9-200 HAVING TO BE ALLOWED IN AN AMOUNT
NOT EXCEEDING THE LIABILITIES CARRIED BY THE CEDING
INSURER.
Be it enacted by the General Assembly of the State of South Carolina:
Purpose, intent of code section; mandates; assets, claims
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 nonUnited
States 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.
Credit for reinsurance; cessions; etc.
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 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 subsection (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 an 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. The accreditation of an assuming insurer with a
surplus as regards policyholders of less than twenty million dollars which
is licensed in its state of domicile (or, in the case of an alien assuming
insurer, in the state through which it is entered and in which it is licensed)
to write life, health, annuity insurance, or any combination of those kinds
of insurance, shall be approved by the director, and if the assuming
insurer, among other criteria:
(i) maintains a surplus as regards policyholders in an amount
in excess of the amounts required by Section 38-9-10 and Section
38-9-20;
(ii) maintains total adjusted capital of not less than four times
the risk-based capital authorized control level (determined as of its last
filed annual statement); and
(iii) satisfies the standard for exemption from asset adequacy
analysis contained in South Carolina Regulation 69-52.
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 twenty million dollars; 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:
(A) 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;
(B) 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
(C) 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 subsection (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
subsection (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."
"Asset" to be allowed; etc.
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. 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."
Time effective
SECTION 4. This act takes effect upon approval by the Governor.
Approved the 10th day of June, 1998. |