New Mexico Administrative Code › Title 13 - INSURANCE › Chapter 2 - INSURANCE COMPANY LICENSING AND OPERATION › Part 7 - LIFE AND HEALTH REINSURANCE AGREEMENTS › Section 13.2.7.8 - ACCOUNTING REQUIREMENTS FOR REINSURANCE CEDED

Current through Register Vol. 35, No. 13, July 16, 2024
No insurer subject to this rule shall, for reinsurance ceded,
				  reduce any liability or establish any asset in any financial statement filed
				  with the superintendent if, by the terms of the reinsurance agreement, in
				  substance or effect, any of the following conditions exists:
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.
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, shall not be considered to be such a deprivation of surplus or
				assets.
C. 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.
D. The ceding
				insurer must, at specific points in time scheduled in the agreement, terminate
				or automatically recapture all or part of the reinsurance ceded.
E. The reinsurance agreement involves the
				possible payment by the ceding insurer to the reinsurer of amounts other than
				from gross premium less expenses 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 or to a reinsurer and a third party which
				are greater than the direct premiums collected by the ceding company.
F. The treaty does not transfer all of the
				significant risk inherent in the business being reinsured (Table A [now
				13.2.7.14 NMAC] identifies the risks which are considered to be significant for
				a representative sampling of products or type of business; for products not
				specifically included in Table A [now 13.2.7.14 NMAC], the risks determined to
				be significant shall be consistent with this table.);
G. The credit quality, reinvestment, or
				disintermediation risk is significant for the business reinsured and the ceding
				company does not 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 superintendent which legally
				segregates, by contract or contract provision, the underlying assets; however,
				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:
(1)
				health insurance - long term care/long term disability;
(2) traditional non-par permanent;
(3) traditional par permanent;
(4) adjustable premium permanent;
(5) indeterminate premium
				permanent;
(6) universal life fixed
				premium (no dump-in premiums allowed).
(a) 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
(b) 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. (Note that line and exhibit references are
				for the 1992 annual statement. Be aware that annual statement references may
				change from year to year);