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General Laws

Section 20A. (1) Credit for reinsurance shall be allowed a domestic ceding insurer as either an asset or a deduction from liability on account of reinsurance ceded only when the reinsurer meets the requirements of paragraph (A), (B), (C) or (D) or paragraph (E) of this subsection. If meeting the requirements of paragraph (C), the requirements of paragraph (F) shall also be met. If meeting the requirements of paragraph (D), the requirements of paragraphs (F) and (G) shall also be met.

(A) Credit shall be allowed when the reinsurance is ceded to an assuming insurer which is licensed: (i) to issue policies in the commonwealth covering risks of the same kinds as those reinsured, or (ii) to reinsure in the commonwealth risks of the same kinds as those reinsured.

(B) Credit shall be allowed when the reinsurance is ceded to an assuming insurer which is accredited as a reinsurer in this commonwealth. An accredited reinsurer is one which:

(i) files with the commissioner evidence of its submission to this commonwealth’s jurisdiction;

(ii) submits to the commonwealth’s authority to examine its books and records;

(iii) is licensed to transact insurance or reinsurance in at least one state, or in the case of a United States branch of an alien assuming insurer is entered through and licensed to transact insurance or reinsurance in at least one state; and

(iv) files annually with the commissioner a copy of its annual statement filed with the insurance department of its state of domicile and a copy of its most recent audited financial statement; and either

(a) maintains a surplus as regards policyholders in an amount which is not less than twenty million dollars and whose accreditation has not been denied by the commissioner within ninety days of its submission; or

(b) maintains a surplus as regards policyholders in an amount less than twenty million dollars and whose accreditation has been approved by the commissioner.

No credit shall be allowed a domestic ceding insurer, if the assuming insurers’ accreditation has been revoked by the commissioner after notice and hearing.

(C) Credit shall be allowed when the reinsurance is ceded to an assuming insurer which is domiciled and licensed in, or in the case of a United States branch of an alien assuming insurer is entered through, a state which employs standards regarding credit for reinsurance substantially similar to those applicable under this section and the assuming insurer or United States branch of an alien assuming insurer:

(i) maintains a surplus as regards policyholders in an amount not less than twenty million dollars; and (ii) submits to the authority of the commonwealth to examine its books and records; provided, however, that the requirement of clause (i) of paragraph (C) does not apply to reinsurance ceded and assumed pursuant to pooling arrangements among insurers in the same holding company system.

(D)(i) Credit shall be allowed when the reinsurance is ceded to an assuming insurer which maintains a trust fund in a qualified United States financial institution, as defined in paragraph (B), for the payment of the valid claims of its United States policyholders and ceding insurers, their assigns and successors in interest. The assuming insurer shall report annually to the commissioner information substantially the same as that required to be reported on the National Association of Insurance Commissioners Annual Statement form by licensed insurers to enable the commissioner to determine the sufficiency of the trust fund. In the case of a single assuming insurer, the trust shall consist of a trusteed account representing the assuming insurer’s liabilities attributable to business written in the United States and, in addition, the assuming insurer shall maintain a trusteed surplus of not less than $20,000,000. In the case of a group of individual unincorporated underwriters, the trust shall consist of a trusteed account representing the group’s liabilities attributable to business written in the United States and, in addition, the group shall maintain a trusteed surplus of which one hundred million dollars shall be held jointly for the benefit of United States ceding insurers of any member of the group; and the group shall make available to the commissioner an annual certification of the solvency of each underwriter by the group’s domiciliary regulator and its independent public accountants.

(ii) In the case of a group of incorporated insurers under common administration which complies with the filing requirements contained in the previous subparagraph, and which has continuously transacted an insurance business outside the United States for at least three years immediately prior to making application for accreditation; and submits to the commonwealth’s authority to examine its books and records and bears the expense of the examination, and which has aggregate policyholders’ surplus of ten billion dollars; the trust shall be in an amount equal to the group’s several liabilities attributable to business ceded by United States ceding insurers to any member of the group pursuant to reinsurance contracts issued in the name of such group; plus the group shall maintain a joint trusteed surplus of which one hundred million dollars shall be held jointly for the benefit of United States ceding insurers of any member of the group as additional security for any such liabilities, and each member of the group shall make available to the commissioner an annual certification of the member’s solvency by the member’s domiciliary regulator and its independent public accountant.

(iii) Such trust shall be established in a form approved by the commissioner. The trust instrument shall provide that contested claims shall be valid and enforceable upon the final order of any court of competent jurisdiction in the United States. The trust shall vest legal title to its assets in the trustees of the trust for its United States policyholders and ceding insurers, their assigns and successors in interest. The trust and the assuming insurer shall be subject to examination as determined by the commissioner. The trust described herein must remain in effect for as long as the assuming insurer shall have outstanding obligations due under the reinsurance agreements subject to the trust.

(iv) No later than February twenty-eighth of each year the trustees of the trust shall report to the commissioner in writing setting forth the balance of the trust and listing the trust’s investments at the preceding year end and shall certify the date of termination of the trust, if so planned, or certify that the trust shall not expire prior to the next following December thirty-first.

(E) Credit shall be allowed when the reinsurance is ceded to an assuming insurer not meeting the requirements of paragraph (A), (B), (C) or (D) but only with respect to the insurance of risks located in jurisdictions where such reinsurance is required by applicable law or regulation of that jurisdiction.

(F) If the assuming insurer is not licensed or accredited to transact insurance or reinsurance in the commonwealth, the credit permitted by paragraphs (C) and (D) shall not be allowed unless the assuming insurer agrees in the reinsurance agreements:

(i) That in the event of the failure of the assuming insurer to perform its obligations under the terms of the reinsurance agreement, the assuming insurer, at the request of the ceding insurer, shall submit to the jurisdiction of an alternative dispute resolution panel or any court of competent jurisdiction in any state of the United States, will comply with all requirements necessary to give such panel or court jurisdiction, and will abide by the final decision of such panel or court or of any appellate court in the event of an appeal of a decision by such panel or court; and (ii) To designate the commissioner or a designated attorney as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the ceding company.

This provision is not intended to conflict with or override the obligation of the parties to a reinsurance agreement to arbitrate their disputes, if such an obligation is created in the agreement.

(G) If the assuming insurer does not meet the requirements of paragraphs (A), (B) or (C), the credit permitted by paragraph (D) shall not be allowed unless the assuming insurer agrees in substance in the trust agreements to the following conditions:

(1) Notwithstanding any other provisions in the trust instrument, if the trust fund is inadequate because it contains an amount less than the amount set forth in paragraph (D), or if the grantor of the trust has been declared insolvent or placed into receivership, rehabilitation, liquidation or similar proceedings under the laws of its state or country of domicile, the trustee shall comply with an order of the commissioner with regulatory oversight over the trust or with an order of a court of competent jurisdiction directing the trustee to transfer to the commissioner with regulatory oversight all of the assets of the trust fund.

(2) The assets shall be distributed by and claims of United States trust beneficiaries shall be filed with and valued by the commissioner with regulatory oversight in accordance with the laws of the state in which the trust is domiciled that are applicable to the liquidation of domestic insurance companies.

(3) If the commissioner with regulatory oversight determines that the assets of the trust fund or any part thereof are not necessary to satisfy the claims of the United States ceding insurers which are United States trust beneficiaries, the assets or part thereof shall be returned by the commissioner with regulatory oversight to the trustee for distribution in accordance with the trust agreement.

(4) The grantor shall waive any right otherwise available to it under United States law that is inconsistent with this provision.

(2) A reduction from liability for the reinsurance ceded by a domestic insurer to an assuming insurer not meeting the requirements of subsection (1) shall be allowed in an amount not exceeding the related liabilities carried by the ceding insurer and such reduction shall be in the amount of funds held by or on behalf of the ceding insurer, including funds held in trust for the ceding insurer, under a reinsurance contract with such assuming insurer as security for the payment of obligations thereunder, if such security is held in the United States subject to withdrawal solely by, and under the exclusive control of, the ceding insurer; or in the case of a trust, held in a qualified United States financial institution, as defined in paragraph (B) of subsection (3). This security may be in the form of:

(A) Cash.

(B) Securities listed by the Securities Valuation Office of the National Association of Insurance Commissioners and qualifying as admitted assets.

(C) Clean, irrevocable, unconditional letters of credit, issued or confirmed by a qualified United States institution, as defined in paragraph (A) of subsection (3), no later than December thirty-first in respect of the year of which filing is being made, and in the possession of the ceding company on or before the filing date of its annual statement. Any such letter of credit shall have a term of at least 1 year and shall contain a clause which prevents the expiration of the letter of credit without notice from the issuer not less than 30 days notice before the end of the term.

Letters of credit meeting applicable standards of issuer acceptability as for the dates of their issuance or confirmation shall, notwithstanding the issuing or confirming institution’s subsequent failure to meet applicable standards of issuer acceptability, continue to be acceptable as security until their expiration, extension, renewal, modification or amendment, whichever first occurs.

(3)(A) For purposes of paragraph (C) of subsection (2), a qualified United States financial institution means an institution that:

(i) is organized or, in the case of a United States office of a foreign banking organization, licensed under the laws of the United States or any state thereof; (ii) is regulated, supervised and examined by United States federal or state authorities having regulatory authority over banks and trust companies; and (iii) has been determined by either the commissioner or the Securities Valuation Office of the National Association of Insurance Commissioners to meet such standards of financial condition and standing as are considered necessary and appropriate to regulate the quality of financial institutions whose letters of credit will be acceptable to the commissioner.

(B) A qualified United States financial institution means, for purposes of those provisions of this section specifying those institutions that are eligible to act as a fiduciary of a trust, an institution that:

(i) is organized, or, in the case of a United States branch or agency office of a foreign banking organization, licensed, under the laws of the United States or any state thereof and has been granted authority to operate with fiduciary powers; and (ii) is regulated, supervised and examined by federal or state authorities having regulatory authority over banks and trust companies.

(4)(A) A credit shall not be allowed, as an admitted asset or deduction from liability, to any ceding insurer for reinsurance unless the reinsurance contract provides, in substance, that in the event of the insolvency of the ceding insurer, the reinsurance shall be payable under a contract(s) reinsured by the assuming insurer on the basis of claims filed and allowed in the liquidation proceeding, without diminution because of the insolvency of the ceding insurer. The payments shall be made directly to the ceding insurer or to its domiciliary liquidator except: (1) where the contract of insurance or reinsurance specifically provides another payee of such reinsurance in the event of the insolvency of the ceding insurer, or (2) where the assuming insurer, with the consent of the direct insured, has assumed the policy obligations of the ceding insurer as direct obligations of the assuming insurer to the payees under the policies and in substitution for the obligations of the ceding insurer to the payees.

(B) Notwithstanding paragraph (A), if a life and health insurance guaranty association has made the election to succeed to the rights and obligations of the insolvent insurer under the contract of reinsurance, the reinsurer’s liability to pay covered reinsured claims shall continue under the contract of reinsurance, subject to the payment to the reinsurer of the reinsurance premiums for the coverage. Payment for the reinsured claims shall only be made by the reinsurer pursuant to the direction of the guaranty association or its designated successor. Any payment made at the direction of the guaranty association or its designated successor by the reinsurer shall discharge the reinsurer of all further liability to any other party for the claim payment.

(C) A reinsurance agreement may provide that the liquidator or receiver or statutory successor of an insolvent ceding insurer shall give written notice of the pendency of a claim against the insolvent ceding insurer on the policy or contract reinsured within a reasonable time after the claim is filed in the insolvency proceeding and during the pendency of the claim the assuming insurer may investigate the claim and interpose, at its own expense, in the proceedings where the claim is to be adjudicated any defense or defenses which it may consider available to the ceding company or its liquidator or receiver or statutory successor. Subject to court approval, the expense thus incurred by the assuming insurer shall be chargeable, against the insolvent ceding insurer as part of the expense of liquidation, to the extent of a proportionate share of the benefit, which may accrue to the ceding insurer solely as a result of the defense undertaken by the assuming insurer. Where 2 or more assuming insurers are involved in the same claim and a majority in interest elect to interpose a defense to the claim, the expense shall be apportioned in accordance with the terms of the reinsurance agreement as though the expense had been incurred by the ceding insurer.

(5) The commissioner may in accordance with the provisions of chapter thirty A, after notice and hearing, promulgate reasonable rules and regulations necessary to effectuate the provisions of this section, but such regulations shall not enlarge upon or extend the provisions of this section.

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