Virginia Administrative Code › Title 14 - INSURANCE › Agency 5 - STATE CORPORATION COMMISSION, BUREAU OF INSURANCE › Chapter 300 - RULES GOVERNING CREDIT FOR REINSURANCE › Section 14VAC5-300-120 - Trust agreements qualified under 14VAC5-300-110 and subdivision 2 of section 38.2-1316.4 of the Act

Current through Register Vol. 40, No. 24, July 15, 2024
A. When a ceding insurer takes credit
				pursuant to subdivision 2 of § 38.2-1316.4 of the Act for reinsurance
				transactions secured by funds held in trust, the underlying trust agreement
				shall meet the following conditions:
1. The
				trust agreement shall be entered into between the beneficiary, the grantor and
				a trustee which shall be a qualified United States financial institution, as
				those terms are defined in this chapter.
2. The trust agreement shall create a trust
				account into which assets shall be deposited.
3. All assets in the trust account shall be
				held by the trustee at the trustee's office in the United States.
4. The trust agreement shall provide that:
a. The beneficiary shall have the right to
				withdraw assets from the trust account at any time, without notice to the
				grantor, subject only to written notice from the beneficiary to the
				trustee;
b. No other statement or
				document is required to be presented in order to withdraw assets, except that
				the beneficiary may be required to acknowledge receipt of withdrawn
				assets;
c. It is not subject to any
				conditions or qualifications outside of the trust agreement; and
d. It shall not contain references to any
				other agreements or documents except as provided for under subdivisions 11 and
				12 of this subsection.
5. The trust agreement shall be established
				for the sole benefit of the beneficiary.
6. The trust agreement shall require the
				trustee to:
a. Receive assets and hold all
				assets in a safe place;
b.
				Determine that all assets are in such form that the beneficiary, or the trustee
				upon direction by the beneficiary, may whenever necessary negotiate any such
				assets, without consent or signature from the grantor or any other person or
				entity;
c. Furnish to the grantor
				and the beneficiary a statement of all assets in the trust account upon its
				inception and at intervals no less frequent than the end of each calendar
				quarter;
d. Notify the grantor and
				the beneficiary, within 10 days, of any deposits to or withdrawals from the
				trust account;
e. Upon written
				demand of the beneficiary, immediately take any and all steps necessary to
				transfer absolutely and unequivocally all right, title and interest in the
				assets held in the trust account to the beneficiary and deliver physical
				custody of such assets to such beneficiary; and
f. Allow no substitutions or withdrawals of
				assets from the trust account, except on written instructions from the
				beneficiary, except that the trustee may, without the consent of but with
				notice to the beneficiary, upon call or maturity of any trust asset, withdraw
				such asset upon condition that the proceeds are paid into the trust
				account.
7. The trust
				agreement shall provide that at least 30 days, but not more than 45 days, prior
				to termination of the trust account, written notification of termination shall
				be delivered by the trustee to the beneficiary.
8. The trust agreement shall be made subject
				to and governed by the laws of the state in which the trust is
				established.
9. The trust agreement
				shall prohibit invasion of the trust corpus for the purpose of paying
				compensation to, or reimbursing the expenses of, the trustee. In order for a
				letter of credit to qualify as an asset of the trust, the trustee shall have
				the right and the obligation pursuant to the deed of trust or some other
				binding agreement (as duly approved by the commission), to immediately draw
				down the full amount of the letter of credit and hold the proceeds in trust for
				the beneficiaries of the trust if the letter of credit will otherwise expire
				without being renewed or replaced.
10. The trust agreement shall provide that
				the trustee shall be liable for its negligence, willful misconduct, or lack of
				good faith. The failure of the trustee to draw against the letter of credit in
				circumstances where such draw would be required shall be deemed to be
				negligence or willful misconduct, or both.
11. Notwithstanding other provisions of this
				chapter, when a trust agreement is established in conjunction with a
				reinsurance agreement covering risks other than life, annuities, and accident
				and health, where it is customary practice to provide a trust agreement for a
				specific purpose, the trust agreement may provide that the ceding insurer shall
				undertake to use and apply amounts drawn upon the trust account, without
				diminution because of the insolvency of the ceding insurer or the assuming
				insurer, only for the following purposes:
a.
				To pay or reimburse the ceding insurer for the assuming insurer's share under
				the specific reinsurance agreement regarding any losses and allocated loss
				expenses paid by the ceding insurer, but not recovered from the assuming
				insurer, or for unearned premiums due to the ceding insurer if not otherwise
				paid by the assuming insurer;
b. To
				make payment to the assuming insurer of any amounts held in the trust account
				that exceed 102% of the actual amount required to fund the assuming insurer's
				obligations under the specific reinsurance agreement; or
c. Where the ceding insurer has received
				notification of termination of the trust account and where the assuming
				insurer's entire obligations under the specific reinsurance agreement remain
				unliquidated and undischarged 10 days prior to the termination date, to
				withdraw amounts equal to the obligations and deposit those amounts in a
				separate account, in the name of the ceding insurer in any qualified United
				States financial institution as defined in § 38.2-1316.1 of the Act apart
				from its general assets, in trust for such uses and purposes specified in
				subdivisions 11 a and b of this subsection as may remain executory after such
				withdrawal and for any period after the termination date.
12. Notwithstanding other provisions of this
				chapter, when a trust agreement is established to meet the requirements of
				14VAC5-300-110 in conjunction with
				a reinsurance agreement covering life, annuities or accident and health risks,
				where it is customary to provide a trust agreement for a specific purpose, the
				trust agreement may provide that the ceding insurer shall undertake to use and
				apply amounts drawn upon the trust account, without diminution because of the
				insolvency of the ceding insurer or the assuming insurer, only for the
				following purposes:
a. To pay or reimburse the
				ceding insurer for:
(1) The assuming
				insurer's share under the specific reinsurance agreement of premiums returned,
				but not yet recovered from the assuming insurer, to the owners of policies
				reinsured under the reinsurance agreement on account of cancellations of the
				policies; and
(2) The assuming
				insurer's share under the specific reinsurance agreement of surrenders and
				benefits or losses paid by the ceding insurer, but not yet recovered from the
				assuming insurer, under the terms and provisions of the policies reinsured
				under the reinsurance agreement;
b. To pay to the assuming insurer amounts
				held in the trust account in excess of the amount necessary to secure the
				credit or reduction from liability for reinsurance taken by the ceding insurer;
				or
c. Where the ceding insurer has
				received notification of termination of the trust and where the assuming
				insurer's entire obligations under the specific reinsurance agreement remain
				unliquidated and undischarged 10 days prior to the termination date, to
				withdraw amounts equal to the assuming insurer's share of liabilities, to the
				extent that the liabilities have not yet been funded by the assuming insurer,
				and deposit those amounts in a separate account, in the name of the ceding
				insurer in any qualified United States financial institution apart from its
				general assets, in trust for the uses and purposes specified in subdivisions 12
				a and b of this subsection as may remain executory after withdrawal and for any
				period after the termination date.
13. Either the reinsurance agreement or the
				trust agreement shall stipulate that assets deposited in the trust account
				shall be valued according to their current fair market value and shall consist
				only of cash in United States dollars, certificates of deposit issued by a
				United States bank and payable in United States dollars, and investments
				permitted by the Code of Virginia or any combination of the above, provided
				investments in or issued by an entity controlling, controlled by or under
				common control with either the grantor or the beneficiary of the trust shall
				not exceed 5.0% of total investments. The agreement may further specify the
				types of investments to be deposited. If the reinsurance agreement covers life,
				annuities or accident and health risks, then the provisions required by this
				subdivision shall be included in the reinsurance agreement.