2023 California Code › Insurance Code - INS › DIVISION 2 - CLASSES OF INSURANCE › PART 4 - MISCELLANEOUS CASUALTY INSURANCES › CHAPTER 1 - Surety Insurers on Reserve Basis; Capital Requirements and Permitted Insurances › ARTICLE 5 - Financial Guaranty Insurance › Section 12121.

12121. (a) For financial guaranty insurance that takes effect on or after January 1, 1991, an insurer authorized to transact financial guaranty insurance shall receive credit for reinsurance as an asset or as a reduction from liabilities only if the reinsurance is placed with a reinsurer as provided in subdivision (b), and if the reinsurance agreement may be terminated or amended only if one or more of the following applies:
(1) At the option of the reinsurer or the ceding insurer if the reinsurance agreement provides that the liability of the reinsurer with respect to policies in effect at the date of termination shall continue until the expiration or cancellation of each such policy.
(2) With the consent of the ceding company, if the reinsurance agreement provides for a cutoff of the reinsurance in force as of the date of termination.
(3) At the discretion of the commissioner acting as rehabilitator, liquidator, or receiver of the ceding or assuming insurer.
(b) Reinsurance may be placed with one of the following:
(1) Another financial guaranty insurance corporation admitted pursuant to this article to transact financial guaranty insurance which may be under common control with the ceding financial guaranty insurer or financial guaranty corporation, but which does not own, and is not owned by, in whole or in part, directly or indirectly, the ceding financial guaranty insurer or financial guaranty insurance corporation.
(2) Another financial guaranty insurance corporation admitted pursuant to this article which does own, or is owned by, in whole or in part, directly or indirectly, the ceding financial guaranty insurer or financial guaranty insurance corporation provided that (A) the value of the ownership interest in either case does not exceed the greater of (i) 35 percent of its combined capital and surplus or (ii) 50 percent of the excess of its surplus over its liabilities and capital, and (B) the financial guaranty insurance corporation providing the reinsurance is rated at the time of cession and thereafter in one of the two top generic rating classifications by a securities rating agency acceptable to the commissioner.
(3) An insurer admitted to transact surety insurance but not financial guaranty insurance pursuant to this article, if the insurer meets all of the following criteria:
(A) Has and maintains combined capital and surplus of at least fifty million dollars ($50,000,000).
(B) Establishes and maintains the reserves required in Sections 12108, 12109, and 12110, except that if the reinsurance agreement is not pro rata the contribution to the contingency reserve shall be equal to 50 percent of the quarterly earned insurance premium.
(C) Complies with the provisions of subdivision (b) of Section 12114, except that its maximum aggregate assumed total net liability shall be one-half that permitted for a financial guaranty insurance corporation. For the purpose of determining compliance with this clause, the assuming reinsurer, unless at the time of cession and thereafter it is rated in one of the two top generic rating classifications by a securities rating agency acceptable to the commissioner, shall be limited to using 10 percent of its capital and surplus in making this calculation.
(D) Complies with the provisions of Section 12115.
(E) If the insurer is an affiliate, parent, or subsidiary of the financial guaranty insurance corporation, the affiliate, parent, or subsidiary shall not assume a percentage of the corporation’s total liability in excess of its percentage of equity interest in the corporation.
(F) Assumes from the financial guaranty insurance corporation and any affiliate, parent, or subsidiary that is a financial guaranty insurance corporation or an insurer writing only financial guaranty insurance as is or would be permitted by this article, and any other kinds of insurance that a financial guaranty insurance corporation may write in this state, together with all other reinsurers subject to this paragraph, less than 50 percent of the total exposures insured by the financial guaranty insurance corporation and such affiliates, parent, or subsidiaries after deducting any reinsurance placed with another financial guaranty insurance corporation that is not an affiliate, parent, or subsidiary or an insurer writing only financial guaranty insurance as is or would be permitted by this article that is not an affiliate, parent, or subsidiary.
(4) A nonadmitted insurer transacting only financial guaranty insurance as is or would be permitted by this article and that otherwise complies with the provisions of subparagraphs (A), (E), and (F) of paragraph (3), and otherwise complies with paragraph (1) or (2), and in compliance with the requirements of subdivision (b) or (c) of Section 922.4 or subdivision (a) of Section 922.5, as applicable.
(5) A nonadmitted insurer not transacting only financial guaranty insurance as is or would be permitted by this article and that complies with the provisions of subparagraphs (A), (C), (E), and (F) of paragraph (3) in an amount not exceeding the liabilities carried by the ceding financial guaranty insurance corporation and in compliance with the requirements of subdivision (b), (c), or (d) of Section 922.4 or subdivision (a) or (b) of Section 922.5, as applicable.
(c) In determining whether the financial guaranty insurance corporation meets the limitations imposed by Section 12115, in addition to credit for other types of qualifying reinsurance, the financial guaranty insurance corporation’s aggregate risk may be reduced to the extent of the limit for aggregate reinsurance but, in no event, in an amount greater than the amount of the aggregate risk that will become due during the unexpired term of the reinsurance agreement in excess of the financial guaranty insurance corporation’s retention pursuant to the reinsurance agreement.
(Amended by Stats. 2012, Ch. 277, Sec. 13. (SB 1216) Effective January 1, 2013.)