South Carolina General Assembly
109th Session, 1991-1992

Bill 592


Indicates Matter Stricken
Indicates New Matter


                    Current Status

Introducing Body:               Senate
Bill Number:                    592
Primary Sponsor:                Committee (02)
Committee Number:               26
Type of Legislation:            GB
Subject:                        Reinsurance credits and liability
                                reductions
Residing Body:                  House
Current Committee:              Labor, Commerce and Industry
Companion Bill Number:          471 3238
Computer Document Number:       592
Introduced Date:                Feb 05, 1991
Last History Body:              House
Last History Date:              Feb 12, 1991
Last History Type:              Introduced, read first time,
                                referred to Committee
Scope of Legislation:           Statewide
Sponsor Committee:              Banking and Insurance
Sponsor Committee Number:       02
Type of Legislation:            General Bill



History


 Bill  Body    Date          Action Description              CMN
 ----  ------  ------------  ------------------------------  ---
 592   House   Feb 12, 1991  Introduced, read first time,    26
                             referred to Committee
 592   Senate  Feb 08, 1991  Read third time, sent to House
 592   Senate  Feb 07, 1991  Read second time, unanimous
                             consent for third reading on
                             Friday, February 8
 592   Senate  Feb 05, 1991  Placed on Calendar without
                             reference
 592   Senate  Feb 05, 1991  Introduced, read first time

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Indicates Matter Stricken
Indicates New Matter

INTRODUCED

February 5, 1991

S. 592

Introduced by Banking and Insurance Committee

S. Printed 2/5/91--S.

Read the first time February 5, 1991.

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 state 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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