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 A - CREDIT FOR REINSURANCE › Section R20-6-A1604 - Credit for Reinsurance - Reinsurers Maintaining Trust Funds

Current through Register Vol. 30, No. 28, July 12, 2024
A. Pursuant to
				  A.R.S. §
										20-3602(F)
				  and (F)(1), the Director shall allow credit
				  for reinsurance ceded by a domestic insurer to an assuming insurer which, as of
				  any date on which statutory financial statement credit for reinsurance is
				  claimed, and thereafter for so long as credit for reinsurance is claimed,
				  maintains a trust fund in an amount prescribed below in a qualified U.S.
				  financial institution as defined in A.R.S. §
										20-3601
				  for the payment of the valid claims of its U.S. domiciled ceding insurers,
				  their assigns and successors in interest. The assuming insurer shall report
				  annually to the Director substantially the same information as that required to
				  be reported on the National Association of Insurance Commissioners (NAIC)
				  annual statement form by licensed insurers, to enable the Director to determine
				  the sufficiency of the trust fund.
B. The following requirements apply to the
				  following categories of assuming insurer:
1.
				  The trust fund for a single assuming insurer shall consist of funds in trust in
				  an amount not less than the assuming insurer's liabilities attributable to
				  reinsurance ceded by U.S. domiciled insurers, and in addition, the assuming
				  insurer shall maintain a trusteed surplus of not less than $20 million, except
				  as provided in subsection (B)(2) of this Section.
2. At any time after the assuming insurer has
				  permanently discontinued underwriting new business secured by the trust for at
				  least three full years, the commissioner with principal regulatory oversight of
				  the trust may authorize a reduction in the required trusteed surplus, but only
				  after a finding, based on an assessment of the risk, that the new required
				  surplus level is adequate for the protection of U.S. ceding insurers,
				  policyholders and claimants in light of reasonably foreseeable adverse loss
				  development. The risk assessment may involve an actuarial review, including an
				  independent analysis of reserves and cash flows, and shall consider all
				  material risk factors, including when applicable the lines of business
				  involved, the stability of the incurred loss estimates and the effect of the
				  surplus requirements on the assuming insurer's liquidity or solvency. The
				  minimum required trusteed surplus may not be reduced to an amount less than 30%
				  of the assuming insurer's liabilities, attributable to reinsurance ceded by
				  U.S. ceding insurers covered by the trust.
3. The trust fund for a group including
				  incorporated and individual unincorporated underwriters:
a. Shall consist of:
i. For reinsurance ceded under reinsurance
				  agreements with an inception, amendment or renewal date on or after January 1,
				  1993, funds in trust in an amount not less than the respective underwriters'
				  several liabilities attributable to business ceded by U.S. domiciled ceding
				  insurers to any underwriter of the group;
ii. For reinsurance ceded under reinsurance
				  agreements with an inception date on or before December 31, 1992, and not
				  amended or renewed after that date, notwithstanding the other provisions of
				  this Part, funds in trust in an amount not less than the respective
				  underwriters' several insurance and reinsurance liabilities attributable to
				  business written in the United States; and
iii. In addition to these trusts, the group
				  shall maintain a trusteed surplus of which $100 million shall be held jointly
				  for the benefit of the U.S. domiciled ceding insurers of any member of the
				  group for all the years of account.
b. 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. The
				  group shall, within 90 days after its financial statements are due to be filed
				  with the group's domiciliary regulator, provide to the Director:
i. An annual certification by the group's
				  domiciliary regulator of the solvency of each underwriter member of the group;
				  or
ii. If a certification is
				  unavailable, a financial statement, prepared by independent public accountants,
				  of each underwriter member of the group.
4. The trust fund for a group of incorporated
				  insurers under common administration, whose members possess aggregate
				  policyholders surplus of $10 billion (calculated and reported in substantially
				  the same manner as prescribed by the annual statement instructions and
				  Accounting Practices and Procedures Manual of the NAIC) and which has
				  continuously transacted an insurance business outside the United States for at
				  least three years immediately prior to making application for accreditation,
				  shall:
a. Consist of funds in trust in an
				  amount no less than the assuming insurers' several liabilities attributable to
				  business ceded by U.S. domiciled ceding insurers to any members of the group
				  pursuant to reinsurance contracts issued in the name of such group;
b. Maintain a joint trusteed surplus of which
				  $100 million shall be held jointly for the benefit of U.S. domiciled ceding
				  insurers of any member of the group; and
c. File a properly executed Form AR-1
				  (Exhibit A) as evidence of the submission to the Director's authority to
				  examine the books and records of any of its members and shall certify that any
				  member examined will bear the expense of any such examination.
d. Within 90 days after the statements are
				  due to be filed with the group's domiciliary regulator, the group shall file
				  with the Director an annual certification of each underwriter member's solvency
				  by the member's domiciliary regulators, and financial statements, prepared by
				  independent public accountants, of each underwriter member of the
				  group.