Idaho Administrative Code › Title IDAPA 18 - Insurance, Department of › Rule 18.07.06 - RULES GOVERNING LIFE AND HEALTH REINSURANCE AGREEMENTS › Section 18.07.06.011 - ACCOUNTING REQUIREMENTS

Current through August 31, 2023
01.
Standards
			 for Credit on Financial Statement
. No insurer subject to this rule will,
			 for reinsurance ceded, reduce any liability or establish any asset in any
			 financial statement filed with the Department if, by the terms of the
			 reinsurance agreement, in substance or effect, any of the following conditions
			 exist: (3-31-22)
a. 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 basis 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;
			 (3-31-22)
b. 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, such as modified
			 coinsurance reserve adjustments, interest and adjustments on funds withheld,
			 and tax reimbursements, will not be considered to be such a deprivation of
			 surplus or assets; (3-31-22)
c. The
			 ceding insurer needs to reimburse the reinsurer for negative experience under
			 the reinsurance agreement, except that neither offsetting experience refunds
			 against current and prior years' losses under the agreement nor payment by the
			 ceding insurer of an amount equal to the current and prior years' losses under
			 the agreement upon voluntary termination of in force reinsurance by the ceding
			 insurer will be considered such a reimbursement to the reinsurer for negative
			 experience. Voluntary termination does not include situations where termination
			 occurs because of unreasonable provisions which 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; (3-31-22)
d.
			 The ceding insurer needs to, at specific points in time scheduled in the
			 agreement, terminate or automatically recapture all or part of the reinsurance
			 ceded; (3-31-22)
e. The reinsurance
			 agreement involves the possible payment by the ceding insurer to the reinsurer
			 of amounts other than from income realized from the insured policies. For
			 example, it is improper for a ceding company to pay reinsurance premiums, or
			 other fees or charges to a reinsurer which are greater than the direct premiums
			 collected by the ceding company; (3-31-22)
f. The treaty does not transfer all of the
			 significant risk inherent in the business being reinsured. The following table
			 identified for a representative sampling of products or type of business, the
			 risks which are considered to be significant. For products not specifically
			 included, the risks determined to be significant will be consistent with this
			 table. (3-31-22)
i. Risk categories: (3-31-22)
(1) Morbidity. (3-31-22)
(2) Mortality. (3-31-22)
ii. Lapse. This is the risk that a policy
			 will voluntarily terminate prior to the recoupment of a statutory surplus
			 strain experienced at issue of the policy. (3-31-22)
iii. Credit Quality (C1). This is the risk
			 that invested assets supporting the reinsured business will decrease in value.
			 The main hazards are that assets will default or that there will be a decrease
			 in earning power. It excludes market value declines due to changes in interest
			 rate. (3-31-22)
iv. Reinvestment
			 (C3). This is the risk that interest rates will fall and funds reinvested
			 (coupon payments or monies received upon asset maturity or call) will therefore
			 earn less than expected. If asset durations are less than liability durations,
			 the mismatch will increase. (3-31-22)
v. Disintermediation (C3). This is the risk
			 that interest rates rise and policy loans and surrenders increase or maturing
			 contracts do not renew at anticipated rates of renewal. If asset durations are
			 greater than the liability durations, the mismatch will increase. Policyholders
			 will move their funds into new products offering higher rates. The company may
			 have to sell assets at a loss to provide for these withdrawals.
Risk Category
Key: + - Significant
0 - Insignificant
i.
ii.
iii.
iv.
v.
vi.
Health Insurance - other than
							 LTC/LTD*
+
0
+
0
0
0
Health Insurance - LTC/LTD*
+
0
+
+
+
0
Immediate Annuities
0
+
0
+
+
0
Single Premium Deferred Annuities
0
0
+
+
+
+
Flexible Premium Deferred Annuities
0
0
+
+
+
+
Guaranteed Interest Contracts
0
0
0
+
+
+
Other Annuity Deposit Business
0
0
+
+
+
+
Single Premium Whole Life
0
+
+
+
+
+
Traditional Non-Par Permanent
0
+
+
+
+
+
Traditional Non-Par Term
0
+
+
0
0
0
Traditional Par Permanent
0
+
+
+
+
+
Traditional Par Term
0
+
+
0
0
0
Adjustable Premium Permanent
0
+
+
+
+
+
Indeterminate Premium Permanent
0
+
+
+
+
+
Universal Life Flexible Premium
0
+
+
+
+
+
Universal Life Fixed Premium
0
+
+
+
+
+
Universal Life Fixed Premium dump-in premiums
							 allowed
0
+
+
+
+
+
*LTC = Long Term Care Insurance
*LTD = Long Term Disability Insurance
				(3-31-22)
g.
			 Significant Risk. (3-31-22)
i. 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 IDAPA 18.07.06.011.01.g.ii.) either transfer the
			 underlying assets to the reinsurer or legally segregate such assets in a trust
			 or escrow account or otherwise establish a mechanism satisfactory to the
			 Director which legally segregates, by contract or contract provision, the
			 underlying assets. (3-31-22)
ii.
			 Notwithstanding the requirements of IDAPA 18.07.06.011.01.g.i., the assets
			 supporting the reserves for the following classes of business and any classes
			 of business which do not have a significant credit quality, reinvestment or
			 disintermediation risk may be held by the ceding company without segregation of
			 such 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 needs to 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:
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Where: "I" is the net investment income as reported in Annual
				Statement
"CG" is capital gains less capital losses as reported in Annual
				Statement
"X" is the current year cash and invested assets plus
				investment income due and accrued less borrowed money as reported in Annual
				Statement
"Y" is the same as X but for the prior year
				(3-31-22)
h.
			 Settlements are made less frequently than quarterly or payments due from the
			 reinsurer are not made in cash within ninety (90) days of the settlement date.
			 (3-31-22)
i. The ceding insurer
			 needs to make representations or warranties not reasonably related to the
			 business being reinsured. (3-31-22)
j. The ceding insurer needs to make
			 representations or warranties about future performance of the business being
			 reinsured. (3-31-22)
k. 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 business
			 reinsured and, in substance or effect, the expected potential liability to the
			 ceding insurer remains basically unchanged. (3-31-22)