Alaska Administrative Code › Title 3 - Commerce, Community, and Economic Development › Part 2 - Division of Insurance › Chapter 21 - Insurer - Financial › Article 6 - Reinsurance › 3 AAC 21.610 - Accounting requirements

Current through May 31, 2024
(a) A life or
				  health insurer subject to
				  3 AAC 21.600 -
				  3 AAC 21.695 may not, for reinsurance ceded, reduce a
				  liability or establish an asset in a statutory financial statement filed with
				  the division if, by the terms of the reinsurance agreement, any of the
				  following conditions exist in substance or effect:
(1) a renewal expense allowance provided or
				  to be provided to the ceding insurer by the reinsurer in any accounting period
				  is not sufficient to cover the 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 basis on the business reinsured; renewal
				  expenses may include commissions, premium taxes, and direct expenses, including
				  billing, valuation, claims, and maintenance expected by the company at the time
				  the business is reinsured;
(2) the
				  ceding insurer may 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, but termination of the reinsurance agreement by the
				  reinsurer for nonpayment of reinsurance premiums or other amounts due, such as
				  modified coinsurance reserve adjustments, interest, and adjustments on funds
				  withheld, and tax reimbursements, may not be considered a deprivation of
				  surplus or assets;
(3) the ceding
				  insurer is required to reimburse the reinsurer for negative experience under
				  the reinsurance agreement, but 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 upon voluntary termination of
				  in-force reinsurance by the ceding insurer will be considered a reimbursement
				  to the reinsurer for negative experience; voluntary termination does not
				  include a situation where termination occurs because of an unreasonable
				  provision that allows the reinsurer to reduce its risk under the agreement; an
				  example of an unreasonable provision is the right of the reinsurer to increase
				  to excessive levels reinsurance premiums or risk and expense charges, thereby
				  forcing the ceding company to prematurely terminate the reinsurance
				  agreement;
(4) the ceding insurer
				  shall terminate or automatically recapture all or part of the reinsurance
				  ceded, at times specified in the agreement;
(5) the reinsurance agreement involves the
				  possible payment by the ceding insurer to the reinsurer of amounts other than
				  income realized from the reinsured policies; for example, a ceding company may
				  not 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 reinsurance agreement does not
				  transfer all of the significant risk inherent in the business being reinsured;
				  Appendix A of this section identifies the risks that are considered to be
				  significant for a representative sampling of products or type of business; for
				  products not specifically included, the risks determined to be significant must
				  be consistent with Appendix A of this section;
(7) the credit quality, reinvestment, or
				  disintermediation risk is significant for the business reinsured and the ceding
				  company does not transfer the underlying assets to the reinsurer or legally
				  segregate the underlying assets in a trust or escrow account or establish a
				  mechanism satisfactory to the director that legally segregates by contract the
				  underlying assets, unless reinsurance is for one of the following classes of
				  insurance business:
(A) long term care or
				  long term disability;
(B)
				  traditional non-par permanent;
(C)
				  traditional par permanent;
(D)
				  adjustable premium permanent;
(E)
				  indeterminate premium permanent; or
(F) universal life fixed premium with no
				  dump-in premiums allowed;
(8) settlements are made less frequently than
				  quarterly or payments due from the reinsurer are not made in cash within 90
				  days of a settlement date;
(9) the
				  ceding insurer is required to make a representation or warranty not reasonably
				  related to the insurance being reinsured;
(10) the ceding insurer is required to make a
				  representation or warranty about the future performance of the insurance being
				  reinsured; or
(11) the reinsurance
				  agreement is entered into for the principal purpose of producing significant
				  surplus aid for the ceding insurer, typically on a temporary basis, while not
				  transferring all of the significant risks inherent in the insurance being
				  reinsured and, in substance or effect, the expected potential liability to the
				  ceding insurer remains basically unchanged.