2023 Laws of Puerto Rico › TITLE TWENTY-SIX - Insurance (§§ 101 — 10377) › Subtitle 1 - Insurance Generally (§§ 101 — 4513) › Chapter 40 - Rehabilitation and Liquidation (§§ 4001 — 4054) › § 4029a - Liquidation—Life and health reinsurance

(1) A contract reinsuring a life, physical disability or long-term care insurance policy or annuities issued by a ceding insurer subject to a rehabilitation proceeding under this chapter shall be continued or terminated pursuant to their terms and conditions as well as to the provisions of this subsection.
(2) A contract reinsuring a life, physical disability or long-term care insurance policy or an annuity issued by a ceding insurer subject to a liquidation proceeding pursuant to this chapter shall remain in effect, subject to the provisions of this chapter, unless said contracts have been terminated pursuant to their terms prior to the date of the liquidation order or to the date on which said contracts have been terminated pursuant to the liquidation order, in which case, the provisions of the subsection (1) of this section should apply.
(3)
(a) At any time within one hundred and eighty (180) days from the date of the liquidation order, any guaranty association covering in whole or in part a life insurance policy, physical disability insurance policy, long-term care insurance policy or an annuity, may elect to assume the rights and obligations of the ceding insurer that relate to the policy or annuity covered in whole or in part by the guaranty association, in each case, under one or more reinsurance contracts between the insolvent insurer and its reinsurers, as determined by the guarantee association. Said assumption shall be effective as of the coverage date. The election shall be made by the guaranty association or by the National Organization of Life and Health Insurance Guaranty Associations (NOLHGA) [on] its behalf by sending written notice, return receipt requested, to the affected reinsurers.
(b) To facilitate the earliest decision possible about whether to assume any of the reinsurance contracts and in order to protect the financial position of the estate, the liquidator and each reinsurer of the ceding insurer shall make available, at the request of the affected guaranty associations or the National Organization of Life and Health Insurance Guaranty Associations (NOLHGA) in representation of the same, as soon as possible after commencement of receivership proceedings, copies of the reinsurance contracts in force as well as of all records related thereto and other documents relevant to the determination of whether said contracts should be assumed and notice of any default under the reinsurance contracts or any known event or condition that with the passing of time could become a default reinsurance contract.
(c) The following paragraphs shall apply to those reinsurance contracts assumed by any guarantee association:
(i) The guaranty association shall be responsible for all unpaid premiums due under reinsurance contracts, for the periods both before and after the liquidation order, and shall be responsible for complying with any other obligations after the date of the liquidation order in every case related to life insurance policies, physical disability insurance policies, long-term care insurance policies or annuities covered in whole or in part by guarantee associations. Any costs for reinsurance in excess of the obligation of the guaranty association in policies or annuities, on account of these being covered in part by a guarantee association, may be charged by the guarantee association through reasonable allocation methods. The guarantee association shall provide notice and justify said charges to the liquidator.
(ii) The guaranty association shall be entitled to any amounts payable by the reinsurer under reinsurance contracts with respect to losses or events that occur in a period subsequent to the date of the liquidation order and related to life insurance policies, physical disability insurance policies, long-term care insurance policy or annuities covered in whole or in part by the association; Provided, That upon receipt of said amounts, the guaranty association shall be obliged to pay to the beneficiary under the policy or annuity against which the amounts were paid, a portion of said amount equal to the lesser of:
(A) The amount received by the guaranty association, and
(B) the excess of the amount received by the guaranty association over the amount equal to the benefits paid by the guaranty association on account of the policy or annuity, subtracting the retention of the insurer applicable to the loss or event.
(iii) Within thirty (30) days following the election of the guarantee association, the guaranty association and each reinsurer under contracts assumed by the guaranty association shall compute the net balance to be paid by the guaranty association or which the guaranty association is to pay under each reinsurance contract as of the date of the election and with respect to policies or annuities covered, in whole or in part, by the guaranty association. Such computation shall give full credit to all payments made by the insurer or the liquidator or the reinsurer before the date of the election. The reinsurer shall pay the liquidator any amounts payable for claims or events before the date of coverage, subject to any setoff for premiums unpaid for periods before the date of coverage, and the guaranty association or reinsurer shall pay any pending balance due to the other party within five (5) days of the completion of said computation. Any dispute over amounts payable to either party shall be resolved by arbitration pursuant to the terms of the applicable reinsurance contract, or if the contract contains no arbitration clause, as provided in subsection (9)(d) of this section. If the liquidator has received any amounts due to the guaranty association pursuant to paragraph (ii) of this clause, the liquidator shall remit the same to the guaranty association as promptly as practicable.
(iv) If the association or the liquidator, on behalf of the guaranty association, within sixty (60) days of the date of the election, pays the premiums due for periods both before and after the date of the election that relate to life insurance policies, physical disability insurance policies, long-term care insurance policies or annuities covered, in whole or in part, by the guaranty association, the reinsurer shall not be entitled to terminate the reinsurance contracts for failure to pay premiums, insofar as the reinsurance contracts relate to life insurance policies, physical disability insurance policies, long-term care insurance policies or annuities covered, in whole or in part, by the guaranty association, and shall not be entitled to any setoff on any unpaid amounts under other contracts or unpaid amounts due from parties other than the guaranty association, against amounts due the guaranty association.
(4) If pursuant to Receivership Court approval under § 4016 of this title, the liquidator continues certain life insurance policies, physical disability insurance policies, long-term care insurance policies or annuities in force after a liquidation order has been issued, and said policies or annuities are not covered in whole or in part by one or more guaranty associations, the liquidator may, within one hundred and eighty (180) days following the date of coverage, elect to assume the rights and obligations of the ceding insurer under one or more of the reinsurance contracts that relate to the policies or annuities, provided the contracts have not been terminated as set forth in subsection (2) of this section. The election shall be made by sending written notice, return receipt requested, to the affected reinsurers. In such a case, payment of premiums on the reinsurance contracts for the policies or annuities, for periods both before and after the date of coverage, shall be chargeable against the estate as Class 1 administrative expenses. The amounts paid by the reinsurer on account of losses on the policies and annuities shall be paid to the estate of the insolvent insurer.
(5) During the period beginning on the date of coverage and ending on the date of the election:
(a)
(i) Neither the guaranty association nor the reinsurer shall have any rights or obligations under reinsurance contracts that the guaranty association has the right to assume under subsection (3) of this section, whether for a period before or after the date of coverage;
(ii) neither the liquidator nor the reinsurer shall have any rights or obligations under reinsurance contracts that the liquidator has the right to assume under subsection (4) of this section with respect to the period after the date of coverage, but their respective rights and obligations for the period preceding the date of coverage shall remain unchanged, and
(iii) the reinsurer, the liquidator, and the guaranty association shall, to the extent practicable, provide each other with information and records reasonably requested.
(b) Once the guaranty association or the liquidator, as the case may be, elects or declines to elect to assume a reinsurance contract, the parties’ rights and obligations shall be governed by subsection (3), (4) or (9) of this section, as applicable.
(6)
(a) If a guaranty association does not elect to assume a reinsurance contract by the date of the election as provided under subsection (3) of this section, the guaranty association shall have no rights or obligations, in each case for periods both before and after the date of coverage, with respect to the reinsurance contract.
(b) If the liquidator does not elect to assume a reinsurance contract by the date of the election pursuant to subsection (4) of this section, the liquidator and the reinsurer shall retain their respective rights and obligations with respect to the reinsurance contract for the period preceding the date of coverage, but shall have no rights or obligations to each other for the period after the date of coverage, except as provided in subsection (9) of this section.
(c) In the event that the guaranty association or the liquidator, as the case may be, does not elect to assume a reinsurance contract by the date of the election, the reinsurance contract shall terminate retroactively, effective on the date of coverage. Reinsurance contracts covering life insurance policies, physical disability insurance policies, long-term care insurance policies or annuities that are terminated pursuant to § 4016 of this title, shall terminate on the date of coverage. In both cases, subsection (9) of this section shall apply.
(7) When life insurance policies, physical disability insurance policies, long-term care insurance policies, annuities, or guaranty association obligations with respect to them are transferred to an assuming insurer, reinsurance on the policies or annuities may also be transferred by the guaranty association, in the case of contracts assumed under subsection (3) of this section, or by the liquidator, in the case of contracts assumed under subsection (4) of this section, as the case may be, but subject to the following:
(a) Unless the reinsurer and the assuming insurer agree otherwise, the reinsurance contract transferred shall not cover any new insurance policy or annuity in addition to those transferred;
(b) the obligations described in subsections (3) and (4) of this section shall not apply with respect to matters arising after the effective date of the transfer, and
(c) notice shall be given in writing, return receipt requested, by the transferring party to the affected reinsurer not less than thirty (30) days before the effective date of the transfer.
(8) The provisions of this section shall supersede the provisions of any law or of any affected insurance contract that provides for or requires any payment of reinsurance proceeds on account of losses or events that occur in a period after the date of coverage, to the liquidator or to any other person. The liquidator shall remain entitled to any amounts payable by the reinsurer under the reinsurance contracts with respect to losses or events that occur in a period before the date of coverage, subject to the provisions of this chapter, including applicable setoff provisions.
(9) If a contract reinsuring a life insurance policy, physical disability insurance policy, long-term care insurance policy, or an annuity is terminated pursuant to this chapter, the following provisions shall apply:
(a) The reinsurer and the liquidator shall, upon being notified in writing by the other party to the reinsurance contract, not later than thirty (30) days after the receipt by the reinsurer of notice of termination, commence a mandatory negotiation or an arbitration proceeding in accordance with this subsection.
(b) Each party shall appoint an actuary to determine an estimated sum payable as a result of the termination of the reinsurance contract, computed in a way expected to render the parties financially indifferent as to whether the contract is continued or terminated, giving due regard to the financial effects of insolvency. Said sum shall take into account the present value of future cash flows expected under the reinsurance contract and shall be based on a gross premium valuation of net liability using current assumptions that reflect post-liquidation experience expectations, without taking into account additional margins and net margins of any amounts payable and receivable, and with a market value adjustment to reflect premature sale of assets to fund the settlement.
(c) Within ninety (90) days from the date on which the written request pursuant to clause (a) of this subsection is made, each party shall provide the other party with its estimate of the sum due as a result of the termination of the reinsurance contract and all relevant documents and any other information supporting the estimate. The parties shall make a good faith effort to reach an agreement on the sum due.
(d) If the parties are unable to reach an agreement within ninety (90) days following the date on which the documents required in clause (c) of this subsection are submitted, either party may initiate arbitration proceedings as provided in the reinsurance contract. In the event that the reinsurance contract does not contain an arbitration clause, either party may commence the arbitration proceeding pursuant to this subsection by providing the other party with a written demand for arbitration. Said arbitration shall be conducted pursuant to the following procedures:
(i) The venue for the arbitration proceeding shall be that which is agreed to by the parties.
(ii) Thirty (30) days from the date either party receives the arbitration demand, each party shall appoint an impartial arbitrator who is a disinterested active officer or executive or a retired officer of a life insurance or reinsurance company, or other professional with not less than ten (10) years of experience in or relating to the field of life insurance or reinsurance. The two arbitrators, in turn, shall appoint an independent, impartial umpire who is an active or retired officer or executive of a life insurance or reinsurance company or other professional with not less than ten (10) years of experience in the field of life insurance or reinsurance. If the arbitrators are unable to agree on an umpire, each arbitrator shall provide the other with the names of three (3) qualified individuals. Each arbitrator shall strike two names from the three submitted by the other arbitrator and the umpire shall be randomly chosen from the two remaining candidates.
(iii) Except as otherwise ordered by the arbitration panel and within sixty (60) days following the date on which the umpire is appointed, the parties shall submit to the panel their estimates of the sum due as a result of the termination of the reinsurance contract, together with all relevant documents and other information supporting each estimate.
(iv) The terms set forth herein may be extended upon mutual agreement of the parties.
(v) The panel shall have all powers necessary to conduct the arbitration proceedings in a fair and appropriate manner, including the power to request additional information from the parties, to authorize discovery, to hold hearings and to hear testimony. Furthermore, the panel may, if the same considers it convenient, appoint independent actuaries, the expense of which shall be shared equally between the parties.
(e) An arbitration panel considering the matters set forth in this clause shall apply the standards set forth in clause (b) of this subsection and shall issue a written award specifying a net settlement amount due from one party or the other as a result of the termination of the reinsurance contract. The Receivership Court shall confirm the award in the absence of proof of statutory grounds for modifying or repealing the award as established by the Federal Arbitration Act.
(f) If the net settlement amount agreed upon or awarded pursuant to this clause should be payable by the reinsurer, the latter shall pay the amount due to the estate, but subject to any applicable setoff under § 4027 of this title. If the net settlement amount agreed upon or awarded pursuant to this clause is payable by the insurer, the reinsurer shall be considered to have a timely filed claim for that amount, which claim shall be paid pursuant to the priority established in § 4039(4) of this title. The guaranty association shall not be entitled to receive the net settlement amount, except to the extent it is entitled to share in the estate assets as creditors thereof, and shall have no responsibility for the amount agreed upon.
(10) Except as otherwise provided in this section, none of the provisions herein shall alter or modify the terms and conditions of any reinsurance contract nor shall abrogate or abridge any rights of a reinsurer to rescind a reinsurance contract. Nothing in this section shall give any policyholder or beneficiary an independent cause of action against the reinsurer that is not otherwise set forth in the reinsurance contract. None of the provisions herein shall either abridge or affect the rights of any guaranty association as a creditor of the estate against the assets of the estate. None of these provisions shall apply to reinsurance agreements covering property or casualty risks.
History —Ins. Code, added as § 40.291 on Dec. 14, 2007, No. 206, § 29.