Illinois Administrative Code › Title 50 - INSURANCE › Part 1103 - LIFE REINSURANCE AGREEMENTS › Section 1103.30 - Accounting Requirements

Current through Register Vol. 48, No. 28, July 12, 2024
a) No
			 insurer subject to this Part shall, for reinsurance ceded, reduce any liability
			 or establish any asset in any financial statement filed with the Division if,
			 by the terms of the reinsurance agreement, in substance or effect, any of the
			 following conditions exist:
1) Renewal expense
			 allowances provided or to be provided to the ceding insurer by the reinsurer in
			 any accounting period are not sufficient to cover anticipated allocable renewal
			 expenses of the ceding insurer on the portion of the business reinsured, unless
			 a liability is established for the present value of the shortfall, using
			 assumptions equal to the applicable statutory reserve bases on the business
			 reinsured. Those expenses include commissions, premium taxes and direct
			 expenses including but not limited to billing, valuation, claims and
			 maintenance expected by the company at the time the business is
			 reinsured;
2) The ceding insurer
			 can be deprived of surplus or assets at the reinsurer's option or automatically
			 upon the occurrence of some event, such as the insolvency of the ceding
			 insurer, except that termination of the reinsurance agreement by the reinsurer
			 for nonpayment of reinsurance premiums or other amounts due, including but not
			 limited to modified coinsurance reserve adjustments, interest and adjustments
			 on funds withheld, and tax reimbursements, shall not be considered to be a
			 deprivation of surplus;
3) The
			 ceding insurer is required to reimburse the reinsurer for negative experience
			 under the reinsurance agreement, except that neither offsetting experience
			 refunds against current and prior years' losses nor payment by the ceding
			 insurer of an amount equal to the current and prior years' losses under the
			 agreement upon voluntary terminations of in-force reinsurance by ceding insurer
			 shall be considered a reimbursement to the reinsurer for negative experience.
			 Voluntary termination does not include situations where termination occurs
			 because of unreasonable provisions that allow the reinsurer to reduce its risk
			 under the agreement. An example of such a provision is the right of the
			 reinsurer to increase reinsurance premiums or risk and expense charges to
			 excessive levels forcing the ceding company to prematurely terminate the
			 reinsurance treaty;
4) The ceding
			 insurer shall, at specific points in time scheduled in the agreement, terminate
			 or automatically recapture all or part of the reinsurance ceded;
5) The reinsurance agreement involves the
			 possible payment by the ceding insurer to the reinsurer of amounts other than
			 from income realized from the reinsured policies. For example, it is improper
			 for a ceding company to pay reinsurance premiums or other fees or charges to a
			 reinsurer that are greater than the direct premiums collected by the ceding
			 company;
6) The treaty does not
			 transfer all of the significant risk inherent in the business being reinsured.
			 Exhibit A of this Part identifies, for a representative sampling of products or
			 type of business, the risks considered to be significant. For products not
			 specifically included, the risks determined to be significant shall be
			 consistent with Exhibit A;
7)
			 Requirements concerning credit quality, reinvestment or disintermediation risk.
A) The credit quality, reinvestment or
			 disintermediation risk is significant for the business reinsured and the ceding
			 company does not (other than for the classes of business excepted in subsection
			 (a)(7)(B)) either transfer the underlying assets to the reinsurer or legally
			 segregate such assets in a trust account or escrow account or otherwise
			 establish a mechanism that segregates, by contract or contract provision, the
			 underlying assets.
B)
			 Notwithstanding the requirements of subsection (a)(7)(A), the assets supporting
			 the reserves for the following classes of business and any classes of business
			 that do not have a significant credit quality, reinvestment or
			 disintermediation risk may be held by the ceding company without segregation of
			 those assets; Health Insurance LTC/LTD, Traditional Non-Par Permanent,
			 Traditional Par Permanent, Adjustable Premium Permanent, Indeterminate Premium
			 Permanent, Universal Life Fixed Premium (no dump-in premiums allowed). The
			 associated formula for determining the reserve interest rate adjustment shall
			 use a formula that reflects the ceding company's investment earnings and
			 incorporates all realized and unrealized gains and losses reflected in the
			 statutory statement. The following is an acceptable formula:
Rate
=
2(I + CG)
(X + Y - I - CG)
i) I is the net
			 investment income
ii) CG is capital
			 gains less capital losses
iii) X is
			 the current year cash and invested assets plus investment income due and
			 accrued less borrowed money
iv) Y
			 is the same as X but for the prior year;
8) Settlements are made less frequently than
			 quarterly or payments due from the reinsurer are not made in cash within 90
			 days after the settlement date;
9)
			 The ceding insurer is required to make representations or warranties not
			 reasonably related to the business being reinsured;
10) The ceding insurer is required to make
			 representations or warranties about future performance of the business being
			 reinsured;
11) The amount of the
			 total admitted assets of the ceding insurance company less the amount of all
			 funds withheld by any reinsurer as a result of all reinsurance treaties is less
			 than the total gross amount available to policyholders either through the
			 exercise of policy cash surrender or loan provisions;
12) The reinsurance agreement is entered into
			 for the principal purpose of producing significant surplus aid for the ceding
			 company typically on a temporary basis, while not transferring all of the
			 significant risks inherent in the business reinsured, and the remaining
			 liability to the ceding insurer remains basically unchanged.