New York Codes, Rules and Regulations › Title 11 - INSURANCE › Chapter IV - Financial Condition Of Insurer and Reports to Superintendent › Subchapter D - Reinsurance › Part 127 - Reinsurance Transactions By Authorized Life Insurers And Certain Other Authorized Insurers › Section 127.2 - Accounting requirements

Current through Register Vol. 46, No. 28, July 10, 2024
(a) No
				  insurer subject to this Part shall, for reinsurance ceded, take reserve credit
				  by reducing a liability or establishing an 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:
(1) renewal expense allowances, provided or
				  to be provided to the ceding insurer by the assuming insurer in any accounting
				  period, are not sufficient to cover anticipated allocable renewal expenses of
				  the ceding insurer on the portion of 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 ceding
				  insurer at the time the business is reinsured;
(2) the ceding insurer can be deprived of
				  surplus or assets at the assuming insurer'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 assuming insurer 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 a deprivation of surplus
				  or assets;
(3) the ceding insurer
				  is required to reimburse the assuming reinsurer for negative experience under
				  the reinsurance agreement, except that offsetting experience refunds against
				  current and prior years' losses under the agreement or 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 not be considered a reimbursement to the reinsurer for negative
				  experience. Voluntary termination does not include terminations that occur
				  because of provisions which allow the assuming insurer to reduce its risk under
				  the agreement; for example, a provision allowing the assuming insurer to
				  increase reinsurance premiums or risk and expense charges;
(4) the interest rate applied to current and
				  prior years' losses exceeds the rate calculated according to the formula set
				  forth in subparagraph (8)(iii) of this subdivision, or, if assets are
				  segregated in accordance with subparagraph (8)(i) of this subdivision, the
				  interest rate reflecting the segregated portfolio's investment earnings
				  including all realized and unrealized gains and losses. For purposes of this
				  paragraph, the application of a negative interest rate is not
				  required;
(5) the ceding insurer
				  must, at specific points in time scheduled in the agreement, terminate or
				  automatically recapture all or part of the reinsurance ceded;
(6) the ceding insurer may be obligated to
				  pay to the assuming insurer amounts other than from income realized from the
				  insured policies. For example, a ceding insurer pays reinsurance premiums, or
				  other fees or charges to an assuming insurer which are greater than the direct
				  premiums collected by the ceding insurer on the insurance policies or contracts
				  reinsured;
(7) the ceding insurer
				  does not transfer to the assuming insurer all of the significant risks inherent
				  in the insurance policies or contracts reinsured. The following table
				  identifies, for a representative sampling of types of insurance policies or
				  contracts, the risks which are considered to be significant. For policies or
				  contracts 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 an insurance policy or contract 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 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....................................................
(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.....................................................
Risk Category
+ = Significant, 0 =
					 Insignificant
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-dump-in premiums
								allowed
0
+
+
+
+
+
* LTC = Long Term Care
					 Insurance, LTD = Long Term Disability Insurance
(8)
(i) the
				  ceding insurer does not transfer the underlying assets to the assuming insurer
				  or otherwise establish a mechanism satisfactory to the superintendent which
				  legally segregates, by contract or contract provision, the underlying assets,
				  except as provided in subparagraph (ii) of this paragraph;
(ii) the assets supporting the reserves for
				  the following classes of insurance policies or contracts and any classes of
				  insurance policies or contracts which do not have a significant credit quality,
				  reinvestment or disintermediation risk may be held by the ceding insurer
				  without segregation of the underlying assets:
(a) Health insurance-LTC/LTD
(b) Traditional non-par permanent
(c) Traditional par permanent
(d) Adjustable premium permanent
(e) Indeterminate premium permanent
(f) Universal life fixed premium-no dump-in
				  premiums allowed
(iii)
				  when assets are held by the ceding insurer pursuant to subparagraph (ii) of
				  this paragraph, the associated formula for determining the reserve interest
				  rate adjustment must reflect the ceding insurer's investment earnings and
				  incorporate all realized and unrealized gains and losses reflected in its
				  statutory statement. The following is an acceptable formula:
Rate = 
					 2(I + CG)/X + Y - I -
					 CG
Where:
I is the net investment income earned, CG is capital gains
					 less capital losses
X is the current year cash and invested assets plus
					 investment income due and accrued less borrowed money
Y is the same as X but for the prior year
(9) settlements are:
(i) made less frequently than quarterly or
				  payments due from the assuming insurer are not made in cash within 90 days of
				  the settlement date; or
(ii) not
				  based on actual experience of the insurance policies being reinsured (including
				  all components of the formula set forth in subparagraph [8][iii] of this
				  subdivision) or reasonable estimates thereof; provided, however, any
				  settlements based on reasonable estimates must be recalculated at least
				  annually to reflect the actual experience of the year;
(10) the ceding insurer is required to make
				  representations or warranties not reasonably related to the business being
				  reinsured;
(11) the ceding insurer
				  is required to make representations or warranties about future performance of
				  the business being reinsured;
(12)
				  the assuming insurer is not required to fully reimburse the ceding insurer for
				  its share of dividends paid on participating policies or additional amounts
				  paid or credited arising from the declaration of interest, mortality or expense
				  more favorable than guaranteed on policies subject to the reinsurance
				  agreement, unless the agreement contains another provision relating to the
				  reimbursement of dividends and/or additional amounts paid or credited which is
				  approved by the superintendent pursuant to subdivision (b) of this section;
				  or
(13) the ceding insurer does not
				  transfer all of the significant risks inherent in the insurance policies or
				  contracts reinsured, and, in substance or effect, the expected potential
				  liability to the ceding insurer remains basically unchanged.