Mississippi Administrative Code › Title 19 - Department of Insurance › Part 1 - General › Chapter 19 - (92-102) Life and Health Reinsurance Agreements › Rule 19-1-19.04 - Accounting Requirements

Current through June 25, 2024
A. No insurer
				subject to this regulation shall, 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:
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 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;
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, such as modified
				coinsurance reserve adjustments, interest and adjustments on funds withheld,
				and tax reimbursements, shall not be considered to be such a deprivation of
				surplus or assets.
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 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 shall 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;
4. The ceding
				insurer must, 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 which 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.
				The following table identifies 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
				shall be consistent with this table.
Risk categories:
a.
				Morbidity
b. Mortality
c. 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.
d. 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.
e. Reinvestment (C3)
This is the risk that interest rates will fall and funds
				  reinvested (coupon payment 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.
f. 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.
+ - Significant 0- Insignificant
RISK CATEGORY
a b c d e f
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
0 + + + + +
dump-in premiums allowed
*LTC = Long Term Care Insurance
LTD = Long Term Disability Insurance
7.
(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 Paragraph
				(7) (b)) 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 commissioner which legally segregates, by
				contract or contract provision, the underlying assets.
(b) Notwithstanding the requirements of
				Paragraph (7)(a), 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:
i.
				Health Insurance - LTC/LTD
ii.
				Traditional Non-Par Permanent
iii.
				Traditional Par Permanent
iv.
				Adjustable Premium Permanent
v.
				Indeterminate Premium Permanent
vi.
				Universal Life Fixed Premium
a. (no dump-in
				premiums allowed)
The associated formula for determining the reserve interest
				  rate adjustment must use a formula which 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
Where: I is the net investment income (Exhibit 2, Line 16,
				  Column 7)
CG is capital gains less capital losses (Exhibit 4, Line 10,
				  Column 6)
X is the current year cash and invested assets (Page 2, Line
				  10A, Column 1) plus investment income due and accrued (Page 2, Line 16, Column
				  1) less borrowed money (Page 3, Line 22, Column 1)
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 ninety (90) days of 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 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.