Arizona Administrative Code › Title 20 - COMMERCE, FINANCIAL INSTITUTIONS, AND INSURANCE › Chapter 06 - DEPARTMENT OF INSURANCE AND FINANCIAL INSTITUTIONS - INSURANCE DIVISION › Article 16 - CREDIT FOR REINSURANCE › Part B - TERM AND UNIVERSAL LIFE INSURANCE RESERVE FINANCING › Section R20-6-B1603 - Requirements Applicable to Covered Policies to Obtain Credit for Reinsurance; Opportunity for Remediation

Current through Register Vol. 30, No. 28, July 12, 2024
A.
				  Requirements. Subject to the exemptions described in Section R20-6-B1601(B) and
				  the provisions of subsection (B) of this Section, credit for reinsurance shall
				  be allowed with respect to ceded liabilities pertaining to Covered Policies
				  pursuant to A.R.S. §§
										20-3602
				  or
				  20-3603
				  if, and only if, in addition to all other requirements imposed by law or
				  regulation, the following requirements are met on a treaty-by-treaty basis:
1. The ceding insurer's statutory policy
				  reserves with respect to the Covered Policies are established in full and in
				  accordance with the applicable requirements of A.R.S. §
											20-510
				  and related regulations and actuarial guidelines, and credit claimed for any
				  reinsurance treaty subject to this regulation does not exceed the proportionate
				  share of those reserves ceded under the contract; and
2. The ceding insurer determines the Required
				  Level of Primary Security with respect to each reinsurance treaty subject to
				  this Part B and provides support for its calculation as determined to be
				  acceptable to the Director; and
3.
				  Funds consisting of Primary Security, in an amount at least equal to the
				  Required Level of Primary Security, are held by or on behalf of the ceding
				  insurer, as security under the reinsurance treaty within the meaning of A.R.S.
				  §
											20-3603,
				  on a funds withheld, trust, or modified coinsurance basis; and
4. Funds consisting of Other Security, in an
				  amount at least equal to any portion of the statutory reserves as to which
				  Primary Security is not held pursuant to subsection (A)(3), are held by or on
				  behalf of the ceding insurer as security under the reinsurance treaty within
				  the meaning of A.R.S. §
											20-3603;
				  and
5. Any trust used to satisfy
				  the requirements of this Section shall comply with all of the conditions and
				  qualifications of R20-6-A1608(A) through (G), except that:
a. Funds consisting of Primary Security or
				  Other Security held in trust, shall for the purposes identified in
				  R20-6-B1602(B), be valued according to the valuation rules set forth in
				  R20-6-B1602(B), as applicable; and
b. There are no affiliate investment
				  limitations with respect to any security held in the trust if such security is
				  not needed to satisfy the requirements of subsection (A)(3); and
c. The reinsurance treaty must prohibit
				  withdrawals or substitutions of trust assets that would leave the fair market
				  value of the Primary Security within the trust (when aggregated with Primary
				  Security outside the trust that is held by or on behalf of the ceding insurer
				  in the manner required by subsection (A)(3) below 102% of the level required by
				  subsection (A)(3) at the time of the withdrawal or substitution; and
d. The determination of reserve credit under
				  Section R20-6-A1608(E) shall be determined according to the valuation rules set
				  forth in Section R20-6-B1602(B), as applicable; and
6. The reinsurance treaty has been approved
				  by the Director.