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S.B. 143 Enrolled

             1     

INSURANCE FINANCIAL REQUIREMENTS

             2     
2008 GENERAL SESSION

             3     
STATE OF UTAH

             4     
Chief Sponsor: Kevin T. VanTassell

             5     
House Sponsor: Todd E. Kiser

             6     
             7      LONG TITLE
             8      General Description:
             9          This bill modifies the Insurance Code to address financial requirements related to
             10      insurers or insurance products.
             11      Highlighted Provisions:
             12          This bill:
             13          .    modifies the requirements for when a domestic ceding insurer is allowed credit for
             14      reinsurance;
             15          .    modifies the requirements for when a foreign ceding insurer is allowed credit for
             16      reinsurance or reduction from liability;
             17          .    grants rulemaking authority related to credits and reinsurance;
             18          .    provides a transition for the modified requirements on credit or reductions from
             19      liability;
             20          .    modifies what are permitted investments;
             21          .    modifies limitations on investments;
             22          .    addresses requirements for assumption agreements and reinsurance contracts; and
             23          .    makes technical and conforming amendments.
             24      Monies Appropriated in this Bill:
             25          None
             26      Other Special Clauses:
             27          This bill takes effect on July 1, 2008.
             28          This bill provides revisor instructions.
             29      Utah Code Sections Affected:


             30      AMENDS:
             31          31A-2-309, as last amended by Laws of Utah 2004, Chapter 2
             32          31A-15-103, as last amended by Laws of Utah 2004, Chapter 90
             33          31A-17-404, as last amended by Laws of Utah 1992, Chapter 230
             34          31A-18-101, as enacted by Laws of Utah 1985, Chapter 242
             35          31A-18-105, as last amended by Laws of Utah 2006, Chapter 176
             36          31A-18-106, as last amended by Laws of Utah 2007, Chapter 309
             37          31A-20-107, as last amended by Laws of Utah 1992, Chapter 30
             38          31A-20-108, as last amended by Laws of Utah 2002, Chapter 71
             39          31A-22-1201, as enacted by Laws of Utah 1985, Chapter 242
             40          31A-22-1202, as enacted by Laws of Utah 1985, Chapter 242
             41      ENACTS:
             42          31A-17-404.1, Utah Code Annotated 1953
             43          31A-17-404.2, Utah Code Annotated 1953
             44          31A-17-404.3, Utah Code Annotated 1953
             45          31A-17-404.4, Utah Code Annotated 1953
             46     
             47      Be it enacted by the Legislature of the state of Utah:
             48          Section 1. Section 31A-2-309 is amended to read:
             49           31A-2-309. Service of process through state officer.
             50          (1) The commissioner, or the lieutenant governor when the subject proceeding is
             51      brought by the state, is the agent for receipt of service of [any] a summons, notice, order,
             52      pleading, or [any] other legal process relating to a Utah court or administrative agency upon the
             53      following:
             54          (a) [all insurers] an insurer authorized to do business in this state, while authorized to
             55      do business in this state, and thereafter in [any] a proceeding arising from or related to [any] a
             56      transaction having a connection with this state;
             57          (b) [all] a surplus lines [insurers] insurer for [any] a proceeding arising out of a contract


             58      of insurance that is subject to the surplus lines law, or out of a certificate, cover note, or other
             59      confirmation of that type of insurance;
             60          (c) [all] an unauthorized [insurers] insurer or other [persons] person assisting an
             61      unauthorized [insurers] insurer under Subsection 31A-15-102 (1) by doing an act specified in
             62      Subsection 31A-15-102 (2), for a proceeding arising out of [the] a transaction that is subject to
             63      the unauthorized insurance law;
             64          (d) [any] a nonresident producer, consultant, adjuster, [and] or third party
             65      administrator, while authorized to do business in this state, and thereafter in [any] a proceeding
             66      arising from or related to [any] a transaction having a connection with this state; and
             67          (e) [any] a reinsurer submitting to the commissioner's jurisdiction under Subsection
             68      31A-17-404 [(7)](8).
             69          (2) The following is considered to have irrevocably appointed the commissioner and
             70      lieutenant governor as that person's agents in accordance with Subsection (1):
             71          (a) [each] a licensed insurer by applying for and receiving a certificate of authority;
             72          (b) [each] a surplus lines insurer by entering into a contract subject to the surplus lines
             73      law;
             74          (c) [each] an unauthorized insurer by doing in this state [any of the acts] an act
             75      prohibited by Section 31A-15-103 ; and
             76          (d) [each] a nonresident producer, consultant, adjuster, and third party administrator.
             77          (3) The commissioner and lieutenant governor are also agents for [the executors,
             78      administrators or personal representatives, receivers, trustees, or other successors] an executor,
             79      administrator, personal representative, receiver, trustee, or other successor in interest of [the
             80      persons] a person specified under Subsection (1).
             81          (4) [Litigants] A litigant serving process on the commissioner or lieutenant governor
             82      under this section shall pay the fee applicable under Section 31A-3-103 .
             83          (5) The right to substituted service under this section does not limit the right to serve a
             84      summons, notice, order, pleading, demand, or other process upon a person in [any other]
             85      another manner provided by law.


             86          Section 2. Section 31A-15-103 is amended to read:
             87           31A-15-103. Surplus lines insurance -- Unauthorized insurers.
             88          (1) Notwithstanding Section 31A-15-102 , a foreign insurer that has not obtained a
             89      certificate of authority to do business in this state under Section 31A-14-202 may negotiate for
             90      and make an insurance [contracts] contract with [persons] a person in this state and on [risks] a
             91      risk located in this state, subject to the limitations and requirements of this section.
             92          (2) (a) For [contracts] a contract made under this section, the insurer may, in this
             93      state[,]:
             94          (i) inspect the risks to be insured[, collect premiums and adjust losses, and do all other
             95      acts];
             96          (ii) collect premiums;
             97          (iii) adjust losses; and
             98          (iv) do another act reasonably incidental to the contract[, through employees or through
             99      independent contractors].
             100          (b) An act described in Subsection (2)(a) may be done through:
             101          (i) an employee; or
             102          (ii) an independent contractor.
             103          (3) (a) Subsections (1) and (2) do not permit [any] a person to solicit business in this
             104      state on behalf of an insurer that has no certificate of authority.
             105          (b) [Any insurance] Insurance placed with a nonadmitted insurer shall be placed with a
             106      surplus lines producer licensed under Chapter 23a, Insurance Marketing - Licensing Producers,
             107      Consultants, and Reinsurance Intermediaries.
             108          (c) The commissioner may by rule prescribe how a surplus lines producer may:
             109          (i) pay or permit the payment, commission, or other remuneration on insurance placed
             110      by the surplus lines producer under authority of the surplus lines producer's license to one
             111      holding a license to act as an insurance producer; and
             112          (ii) advertise the availability of the surplus lines producer's services in procuring, on
             113      behalf of [persons] a person seeking insurance, [contracts] a contract with a nonadmitted


             114      [insurers] insurer.
             115          (4) For [contracts] a contract made under this section, a nonadmitted [insurers are]
             116      insurer is subject to Sections 31A-23a-402 and 31A-23a-403 and the rules adopted under those
             117      sections.
             118          (5) A nonadmitted insurer may not issue workers' compensation insurance coverage to
             119      [employers] an employer located in this state, except for stop loss [coverages] coverage issued
             120      to [employers] an employer securing workers' compensation under Subsection 34A-2-201 (3).
             121          (6) (a) The commissioner may by rule prohibit making [contracts] a contract under
             122      Subsection (1) for a specified class of insurance if authorized insurers provide an established
             123      market for the class in this state that is adequate and reasonably competitive.
             124          (b) The commissioner may by rule place [restrictions and limitations] a restriction or a
             125      limitation on and create special procedures for making [contracts] a contract under Subsection
             126      (1) for a specified class of insurance if:
             127          (i) there have been abuses of placements in the class; or [if]
             128          (ii) the policyholders in the class, because of limited financial resources, business
             129      experience, or knowledge, cannot protect their own interests adequately.
             130          (c) The commissioner may prohibit an individual insurer from making [any] a contract
             131      under Subsection (1) and all insurance producers from dealing with the insurer if:
             132          (i) the insurer [has] willfully [violated] violates:
             133          (A) this section[,];
             134          (B) Section 31A-4-102 , 31A-23a-402 , or 31A-26-303 [,]; or [any]
             135          (C) a rule adopted under [any of these sections] a section listed in Subsection
             136      (6)(c)(i)(A) or (B);
             137          (ii) the insurer [has failed] fails to pay the fees and taxes specified under Section
             138      31A-3-301 ; or
             139          (iii) the commissioner has reason to believe that the insurer is:
             140          (A) in an unsound condition [or is];
             141          (B) operated in a fraudulent, dishonest, or incompetent manner; or


             142          (C) in violation of the law of its domicile.
             143          (d) (i) The commissioner may issue one or more lists of unauthorized foreign insurers
             144      whose:
             145          (A) solidity the commissioner doubts[,]; or [whose]
             146          (B) practices the commissioner considers objectionable.
             147          (ii) The commissioner shall issue one or more lists of unauthorized foreign insurers the
             148      commissioner considers to be reliable and solid.
             149          (iii) In addition to the lists described in Subsections (6)(d)(i) and (ii), the commissioner
             150      may issue other relevant evaluations of unauthorized insurers.
             151          (iv) An action may not lie against the commissioner or [any] an employee of the
             152      department for [any] a written or oral communication made in, or in connection with the
             153      issuance of, [the lists or evaluations] a list or evaluation described in this Subsection (6)(d).
             154          (e) A foreign unauthorized insurer shall be listed on the commissioner's "reliable" list
             155      only if the unauthorized insurer:
             156          (i) [has delivered] delivers a request to the commissioner to be on the list;
             157          (ii) [has established] establishes satisfactory evidence of good reputation and financial
             158      integrity;
             159          (iii) (A) [has delivered] delivers to the commissioner a copy of [its] the unauthorized
             160      insurer's current annual statement certified by the insurer; and
             161          (B) continues each subsequent year to file its annual statements with the commissioner
             162      within 60 days of [its filing] the day on which it is filed with the insurance regulatory authority
             163      where [it] the insurer is domiciled;
             164          (iv) (A) (I) is in substantial compliance with the solvency standards in Chapter 17, Part
             165      6, Risk-Based Capital, or maintains capital and surplus of at least $15,000,000, whichever is
             166      greater[,]; and
             167          (II) maintains in the United States an irrevocable trust fund in either a national bank or a
             168      member of the Federal Reserve System, or maintains a deposit meeting the statutory deposit
             169      requirements for insurers in the state where it is made, which trust fund or deposit:


             170          [(I)] (Aa) shall be in an amount not less than $2,500,000 for the protection of all of the
             171      insurer's policyholders in the United States;
             172          [(II)] (Bb) may consist of cash, securities, or investments of substantially the same
             173      character and quality as those which are "qualified assets" under Section 31A-17-201 ; and
             174          [(III)] (Cc) may include as part of the trust arrangement a letter of credit that qualifies
             175      as acceptable security under [Subsection 31A-17-404 (3)(c)(iii)] Section 31A-17-404.1 ; or
             176          (B) in the case of any "Lloyd's" or other similar incorporated or unincorporated group
             177      of alien individual insurers, maintains a trust fund that:
             178          (I) shall be in an amount not less than $50,000,000 as security to its full amount for all
             179      policyholders and creditors in the United States of each member of the group;
             180          (II) may consist of cash, securities, or investments of substantially the same character
             181      and quality as those which are "qualified assets" under Section 31A-17-201 ; and
             182          (III) may include as part of this trust arrangement a letter of credit that qualifies as
             183      acceptable security under [Subsection 31A-17-404 (3)(c)(iii)] Section 31A-17-404.1 ; and
             184          (v) for an alien insurer not domiciled in the United States or a territory of the United
             185      States, is listed on the Quarterly Listing of Alien Insurers maintained by the National
             186      Association of Insurance Commissioners International Insurers Department.
             187          (7) [A] (a) Subject to Subsection (7)(b), a surplus lines producer may not, either
             188      knowingly or without reasonable investigation of the financial condition and general reputation
             189      of the insurer, place insurance under this section with:
             190          (i) a financially unsound [insurers or with insurers] insurer;
             191          (ii) an insurer engaging in unfair practices[,]; or [with]
             192          (iii) an otherwise substandard [insurers, unless the producer] insurer.
             193          (b) A surplus line producer may place insurance under this section with an insurer
             194      described in Subsection (7)(a) if the surplus line producer:
             195          (i) gives the applicant notice in writing of the known deficiencies of the insurer or the
             196      limitations on [his] the surplus line producer's investigation[,]; and
             197          (ii) explains the need to place the business with that insurer.


             198          (c) A copy of [this] the notice described in Subsection (7)(b) shall be kept in the office
             199      of the surplus line producer for at least five years.
             200          (d) To be financially sound, an insurer shall satisfy standards that are comparable to
             201      those applied under the laws of this state to an authorized [insurers] insurer. [Insurers]
             202          (e) An insurer on the "doubtful or objectionable" list under Subsection (6)(d) [and
             203      insurers] or an insurer not on the commissioner's "reliable" list under Subsection (6)(e) [are] is
             204      presumed substandard.
             205          (8) (a) A policy issued under this section shall:
             206          (i) include a description of the subject of the insurance; and
             207          (ii) indicate:
             208          (A) the coverage, conditions, and term of the insurance[,];
             209          (B) the premium charged [and] the policyholder;
             210          (C) the premium taxes to be collected from the policyholder[,]; and
             211          (D) the name and address of the policyholder and insurer.
             212          (b) If the direct risk is assumed by more than one insurer, the policy shall state:
             213          (i) the names and addresses of all insurers; and
             214          (ii) the portion of the entire direct risk each [has assumed] assumes. [All policies]
             215          (c) A policy issued under [the authority of] this section shall have attached or affixed to
             216      the policy the following statement: "The insurer issuing this policy does not hold a certificate of
             217      authority to do business in this state and thus is not fully subject to regulation by the Utah
             218      insurance commissioner. This policy receives no protection from any of the guaranty
             219      associations created under Title 31A, Chapter 28."
             220          (9) Upon placing a new or renewal coverage under this section, [the] a surplus lines
             221      producer shall promptly deliver to the policyholder or [his] the policyholder's agent evidence of
             222      the insurance consisting either of:
             223          (a) the policy as issued by the insurer; or[,]
             224          (b) if the policy is not [then] available upon placing the coverage, a certificate, cover
             225      note, or other confirmation of insurance complying with Subsection (8).


             226          (10) If the commissioner finds it necessary to protect the interests of insureds and the
             227      public in this state, the commissioner may by rule subject [policies] a policy issued under this
             228      section to as much of the regulation provided by this title as is required for a comparable
             229      [policies] policy written by an authorized foreign [insurers] insurer.
             230          (11) (a) [Each] A surplus lines transaction in this state shall be examined to determine
             231      whether it complies with:
             232          (i) the surplus lines tax levied under Chapter 3, Department Funding, Fees, and Taxes;
             233          (ii) the solicitation limitations of Subsection (3);
             234          (iii) the requirement of Subsection (3) that placement be through a surplus lines
             235      producer;
             236          (iv) placement limitations imposed under Subsections (6)(a), (b), and (c); and
             237          (v) the policy form requirements of Subsections (8) and (10).
             238          (b) The examination described in Subsection (11)(a) shall take place as soon as
             239      practicable after the transaction. The surplus lines producer shall submit to the examiner
             240      information necessary to conduct the examination within a period specified by rule.
             241          (c) (i) The examination described in Subsection (11)(a) may be conducted by the
             242      commissioner or by an advisory organization created under Section 31A-15-111 and authorized
             243      by the commissioner to conduct these examinations. The commissioner is not required to
             244      authorize [any] an additional advisory [organizations] organization to conduct [examinations]
             245      an examination under this Subsection (11)(c).
             246          (ii) The commissioner's authorization of one or more advisory organizations to act as
             247      examiners under this Subsection (11)(c) shall be:
             248          (A) by rule[. In addition, the authorization shall be]; and
             249          (B) evidenced by a contract, on a form provided by the commissioner, between the
             250      authorized advisory organization and the department.
             251          (d) [The] (i) (A) A person conducting the examination described in Subsection (11)(a)
             252      shall collect a stamping fee of an amount not to exceed 1% of the policy premium payable in
             253      connection with the transaction. [Stamping fees]


             254          (B) A stamping fee collected by the commissioner shall be deposited in the General
             255      Fund.
             256          (C) The commissioner shall establish [this fee] a stamping fee by rule. [Stamping fees]
             257          (ii) A stamping fee collected by an advisory organization [are] is the property of the
             258      advisory organization to be used in paying the expenses of the advisory organization.
             259          (iii) Liability for paying [the] a stamping fee is as required under Subsection
             260      31A-3-303 (1) for taxes imposed under Section 31A-3-301 .
             261          (iv) The commissioner shall adopt a rule dealing with the payment of stamping fees. If
             262      [stamping fees are] a stamping fee is not paid when due, the commissioner or advisory
             263      organization may impose a penalty of 25% of the stamping fee due, plus 1-1/2% per month
             264      from the time of default until full payment of the stamping fee. [Fees]
             265          (v) A stamping fee relative to [policies] a policy covering [risks] a risk located partially
             266      in this state shall be allocated in the same manner as under Subsection 31A-3-303 (4).
             267          (e) The commissioner, representatives of the department, advisory organizations,
             268      representatives and members of advisory organizations, authorized insurers, and surplus lines
             269      insurers are not liable for damages on account of statements, comments, or recommendations
             270      made in good faith in connection with their duties under this Subsection (11)(e) or under
             271      Section 31A-15-111 .
             272          (f) [Examinations] An examination conducted under this Subsection (11) and [the
             273      documents and] a document or materials related to the [examinations] examination are
             274      confidential.
             275          Section 3. Section 31A-17-404 is amended to read:
             276           31A-17-404. Credit allowed a domestic ceding insurer against reserves for
             277      reinsurance.
             278          (1) [Credit] A domestic ceding insurer is allowed credit for reinsurance [is allowed a
             279      ceding insurer] as either an asset or a [deduction] reduction from liability for reinsurance ceded
             280      only if the reinsurer meets the requirements of Subsection (3), (4), (5), (6), or (7), subject to the
             281      following:


             282          [(a) the reinsurance contract and the accounting for the reinsurance transaction conform
             283      to the requirements of Subsection (2);]
             284          [(b) one or more of the security factors under Subsection (3) is present, or the
             285      transaction is of the type described in Subsection (6); and]
             286          [(c) the assuming insurer has submitted to the jurisdiction of courts in this state in a
             287      manner consistent with Subsection (7).]
             288          (a) Credit is allowed under Subsection (3), (4), or (5) only with respect to a cession of a
             289      kind or class of business that the assuming insurer is licensed or otherwise permitted to write or
             290      assume:
             291          (i) in its state of domicile; or
             292          (ii) in the case of a United States branch of an alien assuming insurer, in the state
             293      through which it is entered and licensed to transact insurance or reinsurance.
             294          (b) Credit is allowed under Subsection (5) or (6) only if the applicable requirements of
             295      Subsection (8) are met.
             296          (2) [Credit] A domestic ceding insurer is allowed credit for reinsurance ceded [may be
             297      granted the ceding insurer]:
             298          (a) only if the reinsurance is payable in a manner consistent with Section 31A-22-1201 ;
             299          (b) only to the extent that the accounting:
             300          (i) is consistent with the terms of the reinsurance [treaty] contract; and
             301          (ii) clearly reflects:
             302          (A) the amount and nature of risk transferred; and [any]
             303          (B) liability, including contingent liability, of the ceding insurer;
             304          (c) only to the extent the reinsurance contract shifts insurance policy risk from the
             305      ceding insurer to the assuming reinsurer in fact and not merely in form; and
             306          (d) only if the reinsurance contract contains a provision placing on the reinsurer the
             307      credit risk of all dealings with intermediaries regarding the reinsurance contract.
             308          [(3) Except as modified for reinsurance pools under Subsection (5), the requirement
             309      under Subsection (1)(b) that a security factor be present is satisfied if:]


             310          [(a) the reinsurer is authorized to do business in this state;]
             311          [(b) the reinsurer has deposited in trust under Section 31A-2-206 , or a comparable
             312      provision of the law of another state of the United States, for the benefit of Utah insureds or a
             313      broader class of insureds that includes Utah insureds, an amount the Utah commissioner
             314      considers sufficient to provide for the reinsurer's total liabilities under the trust, with complete
             315      protection to Utah insureds;]
             316          [(c) the ceding insurer retains, as security for the payment of obligations under the
             317      reinsurance contract, funds belonging to the reinsurer, subject to withdrawal solely by the
             318      ceding insurer and under its exclusive control; but credit may be taken only to the extent the
             319      funds are:]
             320          [(i) cash or cash equivalents;]
             321          [(ii) securities approved by the commissioner, valued at market price;]
             322          [(iii) irrevocable and unconditional letters of credit which comply with rules adopted by
             323      the commissioner and are issued by a bank or trust company which is a member of the Federal
             324      Reserve system;]
             325          [(iv) additional forms of security approved by rule; or]
             326          [(v) a combination of Subsections (3)(c)(i) through (iv);]
             327          [(d) the reinsurer maintains a trust fund in a United States bank or trust company for
             328      the payment of the valid claims of its United States policyholders and ceding insurers, their
             329      assigns, and successors in interest in an amount and subject to the conditions provided in
             330      Subsection (4); or]
             331          [(e) the reinsurer is an authorized insurer in at least one state which the Utah
             332      commissioner designates by rule or order as having been found to enforce standards regarding
             333      credit for reinsurance substantially similar to those applicable under this section and which
             334      reinsurer conforms to the same standards of solvency which would be required of the reinsurer
             335      if it were authorized to do business in this state.]
             336          [(4) (a) Trusts satisfying the security factor described in Subsection (3)(d) shall:]
             337          [(i) consist of a trust account in which is deposited amounts equal to the assuming


             338      insurer's liabilities attributable to business written in the United States and, in addition, surplus
             339      of not less than $20,000,000;]
             340          [(ii) if deposited by a group of individual unincorporated underwriters or a group of
             341      individual incorporated insurers, consist of a trust account in which is deposited amounts equal
             342      to the group's liabilities attributable to business written in the United States and, in addition,
             343      surplus of not less than $100,000,000, with the group making available to the commissioner an
             344      annual solvency certification by the group's domiciliary regulator and its independent public
             345      accountant;]
             346          [(iii) be established in a United States bank or trust company which is a member of the
             347      Federal Reserve system; and]
             348          [(iv) be in a form approved by the commissioner, with trust documents which:]
             349          [(A) provide that contested claims are valid and enforceable upon the final order of any
             350      court of competent jurisdiction in the United States;]
             351          [(B) vest legal title to its assets in the trustees of the trust for its United States
             352      policyholders and ceding insurers, their assigns, and successors in interest;]
             353          [(C) subject the trust and the reinsurer to examination by the commissioner; and]
             354          [(D) provide that the trust remains in effect for as long as the reinsurer has outstanding
             355      obligations due under the reinsurance agreements subject to the trust.]
             356          [(b) To determine the sufficiency of the trust funds, reinsurers maintaining a trust under
             357      Subsection (3)(d) shall annually report to the commissioner information substantially the same
             358      as that required to be reported by authorized insurers on the National Association of Insurance
             359      Commissioner's Annual Statement form described in Section 31A-4-113 . This report shall be
             360      submitted to the commissioner no later than March 1 of each year and shall be accompanied by
             361      written statements disclosing the preceding year-end trust balance, summarizing the trust's
             362      investments at the preceding year-end, and certifying the termination date of the trust, if trust
             363      termination is planned, or that the trust shall not expire prior to the next following December
             364      31.]
             365          [(5) If a ceding insurer has entered into a reinsurance agreement satisfying the


             366      requirements of Subsection (2) and if the reinsurer under the agreement is a pool of reinsurers,
             367      and if any of the members of the reinsurance pool do not satisfy one of the alternate security
             368      factors specified in Subsection (3), then the reserve credit for reinsurance is allowed only to the
             369      extent that the reinsurance risk is borne by members of the reinsurance pool that have satisfied
             370      one or more of the alternate security factors specified in Subsection (3).]
             371          [(6) The security factor requirement of Subsections (1)(b) and (3) need not be satisfied
             372      as a condition to receiving a reserve credit to the extent that:]
             373          [(a) the risks reinsured are located in jurisdictions other than the United States; and]
             374          [(b) the reinsurance is required by applicable law or regulation of that jurisdiction.]
             375          [(7) No reinsurance credit may be allowed the]
             376          (3) A domestic ceding insurer is allowed a credit if the reinsurance is ceded to an
             377      assuming insurer that is licensed to transact insurance or reinsurance in this state.
             378          (4) (a) A domestic ceding insurer is allowed a credit if the reinsurance is ceded to an
             379      assuming insurer that is accredited as a reinsurer in this state.
             380          (b) An insurer is accredited as a reinsurer if the insurer:
             381          (i) files with the commissioner evidence of the insurer's submission to this state's
             382      jurisdiction;
             383          (ii) submits to the commissioner's authority to examine the insurer's books and records;
             384          (iii) (A) is licensed to transact insurance or reinsurance in at least one state; or
             385          (B) in the case of a United States branch of an alien assuming insurer, is entered
             386      through and licensed to transact insurance or reinsurance in at least one state;
             387          (iv) files annually with the commissioner a copy of the insurer's:
             388          (A) annual statement filed with the insurance department of its state of domicile; and
             389          (B) most recent audited financial statement; and
             390          (v) (A) (I) has not had its accreditation denied by the commissioner within 90 days of
             391      the day on which the insurer submits the information required by this Subsection (4); and
             392          (II) maintains a surplus with regard to policyholders in an amount not less than
             393      $20,000,000; or


             394          (B) (I) has its accreditation approved by the commissioner; and
             395          (II) maintains a surplus with regard to policyholders in an amount less than
             396      $20,000,000.
             397          (c) Credit may not be allowed a domestic ceding insurer if the assuming insurer's
             398      accreditation is revoked by the commissioner after a notice and hearing.
             399          (5) (a) A domestic ceding insurer is allowed a credit if:
             400          (i) the reinsurance is ceded to an assuming insurer that is:
             401          (A) domiciled in a state meeting the requirements of Subsection (5)(a)(ii); or
             402          (B) in the case of a United States branch of an alien assuming insurer, is entered
             403      through a state meeting the requirements of Subsection (5)(a)(ii);
             404          (ii) the state described in Subsection (5)(a)(i) employs standards regarding credit for
             405      reinsurance substantially similar to those applicable under this section; and
             406          (iii) the assuming insurer or United States branch of an alien assuming insurer:
             407          (A) maintains a surplus with regard to policyholders in an amount not less than
             408      $20,000,000; and
             409          (B) submits to the authority of the commissioner to examine its books and records.
             410          (b) The requirements of Subsections (5)(a)(i) and (ii) do not apply to reinsurance ceded
             411      and assumed pursuant to a pooling arrangement among insurers in the same holding company
             412      system.
             413          (6) (a) A domestic ceding insurer is allowed a credit if the reinsurance is ceded to an
             414      assuming insurer that maintains a trust fund:
             415          (i) created in accordance with rules made by the commissioner; and
             416          (ii) in a qualified United States financial institution for the payment of a valid claim of:
             417          (A) a United States ceding insurer of the assuming insurer;
             418          (B) an assign of the United States ceding insurer; and
             419          (C) a successor in interest to the United States ceding insurer.
             420          (b) To enable the commissioner to determine the sufficiency of the trust fund described
             421      in Subsection (6)(a), the assuming insurer shall:


             422          (i) report annually to the commissioner information substantially the same as that
             423      required to be reported on the National Association of Insurance Commissioners Annual
             424      Statement form by a licensed insurer; and
             425          (ii) (A) submit to examination of its books and records by the commissioner; and
             426          (B) pay the cost of an examination.
             427          (c) (i) Credit for reinsurance may not be granted under this Subsection (6) unless the
             428      form of the trust and any amendment to the trust is approved by:
             429          (A) the commissioner of the state where the trust is domiciled; or
             430          (B) the commissioner of another state who, pursuant to the terms of the trust
             431      instrument, accepts principal regulatory oversight of the trust.
             432          (ii) The form of the trust and an amendment to the trust shall be filed with the
             433      commissioner of every state in which a ceding insurer beneficiary of the trust is domiciled.
             434          (iii) The trust instrument shall provide that a contested claim is valid and enforceable
             435      upon the final order of a court of competent jurisdiction in the United States.
             436          (iv) The trust shall vest legal title to its assets in its one or more trustees for the benefit
             437      of:
             438          (A) a United States ceding insurer of the assuming insurer;
             439          (B) an assign of the United States ceding insurer; or
             440          (C) a successor in interest to the United States ceding insurer.
             441          (v) The trust and the assuming insurer are subject to examination as determined by the
             442      commissioner.
             443          (vi) The trust shall remain in effect for as long as the assuming insurer has an
             444      outstanding obligation due under a reinsurance agreement subject to the trust.
             445          (vii) No later than February 28 of each year, the trustee of the trust shall:
             446          (A) report to the commissioner in writing the balance of the trust;
             447          (B) list the trust's investments at the end of the preceding calendar year; and
             448          (C) (I) certify the date of termination of the trust, if so planned; or
             449          (II) certify that the trust will not expire prior to the following December 31.


             450          (d) The following requirements apply to the following categories of assuming insurer:
             451          (i) For a single assuming insurer:
             452          (A) the trust fund shall consist of funds in trust in an amount not less than the assuming
             453      insurer's liabilities attributable to reinsurance ceded by United States ceding insurers; and
             454          (B) the assuming insurer shall maintain a trusteed surplus of not less than $20,000,000.
             455          (ii) For a group acting as assuming insurer, including incorporated and individual
             456      unincorporated underwriters:
             457          (A) for reinsurance ceded under a reinsurance agreement with an inception, amendment,
             458      or renewal date on or after August 1, 1995, the trust shall consist of a trusteed account in an
             459      amount not less than the group's several liabilities attributable to business ceded by the one or
             460      more United States domiciled ceding insurers to a member of the group;
             461          (B) for reinsurance ceded under a reinsurance agreement with an inception date on or
             462      before July 31, 1995, and not amended or renewed after July 31, 1995, notwithstanding the
             463      other provisions of this chapter, the trust shall consist of a trusteed account in an amount not
             464      less than the group's several insurance and reinsurance liabilities attributable to business written
             465      in the United States;
             466          (C) in addition to a trust described in Subsection (6)(d)(ii)(A) or (B), the group shall
             467      maintain in trust a trusteed surplus of which $100,000,000 is held jointly for the benefit of the
             468      one or more United States domiciled ceding insurers of a member of the group for all years of
             469      account;
             470          (D) the incorporated members of the group:
             471          (I) may not be engaged in a business other than underwriting as a member of the group;
             472      and
             473          (II) are subject to the same level of regulation and solvency control by the group's
             474      domiciliary regulator as are the unincorporated members; and
             475          (E) within 90 days after the day on which the group's financial statements are due to be
             476      filed with the group's domiciliary regulator, the group shall provide to the commissioner:
             477          (I) an annual certification by the group's domiciliary regulator of the solvency of each


             478      underwriter member; or
             479          (II) if a certification is unavailable, a financial statement, prepared by an independent
             480      public accountant, of each underwriter member of the group.
             481          (iii) For a group of incorporated underwriters under common administration, the group
             482      shall:
             483          (A) have continuously transacted an insurance business outside the United States for at
             484      least three years immediately preceding the day on which the group makes application for
             485      accreditation;
             486          (B) maintain aggregate policyholders' surplus of at least $10,000,000,000;
             487          (C) maintain a trust fund in an amount not less than the group's several liabilities
             488      attributable to business ceded by the one or more United States domiciled ceding insurers to a
             489      member of the group pursuant to a reinsurance contract issued in the name of the group;
             490          (D) in addition to complying with the other provisions of this Subsection (6)(d)(iii),
             491      maintain a joint trusteed surplus of which $100,000,000 is held jointly for the benefit of the one
             492      or more United States domiciled ceding insurers of a member of the group as additional security
             493      for these liabilities; and
             494          (E) within 90 days after the day on which the group's financial statements are due to be
             495      filed with the group's domiciliary regulator, make available to the commissioner:
             496          (I) an annual certification of each underwriter member's solvency by the member's
             497      domiciliary regulator; and
             498          (II) a financial statement of each underwriter member of the group prepared by an
             499      independent public accountant.
             500          (7) If reinsurance is ceded to an assuming insurer not meeting the requirements of
             501      Subsection (3), (4), (5), or (6), a domestic ceding insurer is allowed credit only as to the
             502      insurance of a risk located in a jurisdiction where the reinsurance is required by applicable law
             503      or regulation of that jurisdiction.
             504          (8) Reinsurance credit may not be allowed a domestic ceding insurer unless the
             505      assuming insurer under the reinsurance contract [has submitted] submits to the jurisdiction of


             506      Utah courts by [either]:
             507          (a) (i) being an admitted insurer[,]; and
             508          (ii) submitting to jurisdiction under Section 31A-2-309 ;
             509          (b) having irrevocably appointed the commissioner as [his] the domestic ceding insurer's
             510      agent for service of process in [any] an action arising out of or in connection with the
             511      reinsurance, which appointment is made under Section 31A-2-309 ; or
             512          (c) agreeing in the reinsurance contract:
             513          (i) that [in the event of the failure of] if the assuming insurer fails to perform its
             514      obligations under the terms of the reinsurance [agreement] contract, the assuming insurer, at the
             515      request of the ceding insurer, shall:
             516          (A) submit to the jurisdiction of [any] a court of competent jurisdiction in [any] a state
             517      of the United States[, shall];
             518          (B) comply with all requirements necessary to give the court jurisdiction[,]; and [shall]
             519          (C) abide by the final decision of the court or of [any] an appellate court in the event of
             520      an appeal; and
             521          (ii) to designate the commissioner or a [designated] specific attorney [with offices]
             522      licensed to practice law in this state as its [true and lawful] attorney upon whom may be served
             523      [any] lawful process in [any] an action, suit, or proceeding instituted by or on behalf of the
             524      ceding company.
             525          [(8)] (9) Submitting to the jurisdiction of Utah courts under Subsection [(7)] (8) does
             526      not override [the duties or rights of the parties under a provision in] a duty or right of a party
             527      under the reinsurance [agreement] contract, including [any] a requirement that the parties
             528      arbitrate their disputes.
             529          (10) If an assuming insurer does not meet the requirements of Subsection (3), (4), or
             530      (5), the credit permitted by Subsection (6) may not be allowed unless the assuming insurer
             531      agrees in the trust instrument to the following conditions:
             532          (a) (i) Notwithstanding any other provision in the trust instrument, if an event described
             533      in Subsection (10)(a)(ii) occurs the trustee shall comply with:


             534          (A) an order of the commissioner with regulatory oversight over the trust; or
             535          (B) an order of a court of competent jurisdiction directing the trustee to transfer to the
             536      commissioner with regulatory oversight all of the assets of the trust fund.
             537          (ii) This Subsection (10)(a) applies if:
             538          (A) the trust fund is inadequate because the trust contains an amount less than the
             539      amount required by Subsection (6)(d); or
             540          (B) the grantor of the trust is:
             541          (I) declared insolvent; or
             542          (II) placed into receivership, rehabilitation, liquidation, or similar proceeding under the
             543      laws of its state or country of domicile.
             544          (b) The assets of a trust fund described in Subsection (10)(a) shall be distributed by and
             545      a claim shall be filed with and valued by the commissioner with regulatory oversight in
             546      accordance with the laws of the state in which the trust is domiciled that are applicable to the
             547      liquidation of a domestic insurance company.
             548          (c) If the commissioner with regulatory oversight determines that the assets of the trust
             549      fund, or any part of the assets, are not necessary to satisfy the claims of the one or more United
             550      States ceding insurers of the grantor of the trust, the assets, or a part of the assets, shall be
             551      returned by the commissioner with regulatory oversight to the trustee for distribution in
             552      accordance with the trust instrument.
             553          (d) A grantor shall waive any right otherwise available to it under United States law
             554      that is inconsistent with this Subsection (10).
             555          Section 4. Section 31A-17-404.1 is enacted to read:
             556          31A-17-404.1. Asset or reduction from liability for reinsurance ceded by a
             557      domestic insurer to other assuming insurers.
             558          (1) (a) An asset or a reduction from liability for reinsurance ceded by a domestic insurer
             559      to an assuming insurer that does not meet the requirements of Section 31A-17-404 is allowed in
             560      an amount not exceeding the liabilities carried by the ceding insurer.
             561          (b) A reduction described in Subsection (1)(a) shall be in the amount of funds held by or


             562      on behalf of the ceding insurer, including funds held in trust for the ceding insurer:
             563          (i) that are held:
             564          (A) under a reinsurance contract with the assuming insurer; and
             565          (B) as security for the payment of obligations under the reinsurance contract; and
             566          (ii) if the security is held:
             567          (A) in the United States subject to withdrawal solely by, and under the exclusive control
             568      of, the ceding insurer; or
             569          (B) in the case of a trust, in a qualified United States financial institution.
             570          (2) Security described in Subsection (1) may be in the form of:
             571          (a) cash;
             572          (b) a security:
             573          (i) listed by the Securities Valuation Office of the National Association of Insurance
             574      Commissioners; and
             575          (ii) qualifying as an admitted asset;
             576          (c) subject to Subsection (3), a clean, irrevocable, unconditional letter of credit, issued
             577      or confirmed by a qualified United States financial institution:
             578          (i) effective no later than December 31 of the year for which the filing is being made;
             579      and
             580          (ii) in the possession of, or in trust for, the ceding company on or before the filing date
             581      of its annual statement; or
             582          (d) another form of security acceptable to the commissioner.
             583          (3) Notwithstanding an issuing or confirming institution's subsequent failure to meet an
             584      applicable standard of acceptability, a letter of credit described in Subsection (2) that meets the
             585      applicable standards of issuer acceptability as of the day on which it is issued or confirmed shall
             586      continue to be acceptable as security until the sooner of the day on which the letter of credit
             587      expires, is extended, is renewed, is modified, or is amended.
             588          Section 5. Section 31A-17-404.2 is enacted to read:
             589          31A-17-404.2. Credit allowed a foreign ceding insurer.


             590          (1) A foreign ceding insurer is allowed a credit for reinsurance or reduction from
             591      liability to the extent that credit is allowed by the ceding insurer's state of domicile if:
             592          (a) the state of domicile is accredited by the National Association of Insurance
             593      Commissioners; or
             594          (b) credit or reduction from liability would be allowed under this section if the foreign
             595      ceding insurer were domiciled in this state.
             596          (2) Credit for reinsurance or reduction from liability may be disallowed a foreign ceding
             597      insurer upon a finding by the commissioner that one or more of the following do not satisfy the
             598      credit for reinsurance requirements of this chapter applicable to a ceding insurer domiciled in
             599      this state:
             600          (a) the condition of the reinsurer; or
             601          (b) the collateral or other security provided by the reinsurer.
             602          Section 6. Section 31A-17-404.3 is enacted to read:
             603          31A-17-404.3. Rules.
             604          In accordance with Title 63, Chapter 46a, Utah Administrative Rulemaking Act, and this
             605      chapter, the commissioner may make rules prescribing:
             606          (1) the form of a letter of credit required under this chapter;
             607          (2) the requirements for a trust or trust instrument required by this chapter;
             608          (3) the procedures for licensing and accrediting; and
             609          (4) minimum capital and surplus requirements.
             610          Section 7. Section 31A-17-404.4 is enacted to read:
             611          31A-17-404.4. Transition -- Application to reinsurance agreement.
             612          The amendments to this part made in this bill apply to a cession made on or after July 1,
             613      2008 under a reinsurance contract that has an inception, anniversary, or renewal date no sooner
             614      than January 1, 2009.
             615          Section 8. Section 31A-18-101 is amended to read:
             616           31A-18-101. Scope -- Definitions.
             617          (1) Except as otherwise provided in this [code] title, this chapter and the rules adopted


             618      to implement it apply to all insurers authorized to do business in this state, including [reinsurers]
             619      a reinsurer.
             620          (2) As used in this chapter, "cash" means a medium of exchange that a depository
             621      institution, as defined in Section 7-1-103 , accepts for deposit and allows an immediate credit to
             622      an account in the depository institution, including the following in a depository institution:
             623          (a) a savings account; or
             624          (b) a certificate of deposit with a maturity date within one year or less from the day on
             625      which the certificate of deposit is acquired.
             626          Section 9. Section 31A-18-105 is amended to read:
             627           31A-18-105. Permitted classes of investments.
             628          The following classes of investment may be counted for the purposes specified under
             629      Chapter 17, Part 6, Risk-Based Capital:
             630          (1) [bonds] a bond or other [evidences] evidence of indebtedness of:
             631          (a) [(i)] a governmental [units] unit in the United States or Canada;
             632          [(ii) instrumentalities of the] (b) an instrumentality of a governmental [units] unit
             633      described in Subsection (1)(a)[(i)]; or
             634          [(iii)] (c) a private [corporations] corporation domiciled in the United States; [and]
             635          [(b) including demand deposits and certificates of deposits in solvent banks and savings
             636      and loan institutions;]
             637          (2) an equipment trust [obligations or certificates that are] obligation or certificate that
             638      is an adequately secured [instruments] instrument:
             639          (a) evidencing an interest in transportation equipment that is located wholly or in part
             640      within the United States[,]; and
             641          (b) with a right to receive determined portions of the rental, or to purchase other fixed
             642      obligatory payments for the use or purchase of the transportation equipment;
             643          (3) [loans] a loan secured by:
             644          (a) one or more mortgages;
             645          (b) one or more trust deeds; or


             646          (c) [other] another statutorily authorized [types] type of security [interests] interest in
             647      real estate located in the United States;
             648          (4) [loans] a loan secured by a pledged [securities or evidences] security or evidence of
             649      debt eligible for investment under this section;
             650          (5) a preferred [stocks] stock of a United States [corporations] corporation;
             651          (6) (a) a common [stocks] stock of a United States [corporations] corporation; or
             652          (b) an American depository [receipts] receipt if traded on one of the following
             653      exchanges:
             654          (i) New York;
             655          (ii) American; or
             656          (iii) NASDAQ;
             657          (7) real estate [which] that is used as the home office or branch office of the insurer;
             658          (8) real estate in the United States [which] that produces substantial income;
             659          (9) [loans] a loan upon the security of the insurer's own policies in [amounts that are] an
             660      amount that:
             661          (a) is adequately secured by the policies; and [that do]
             662          (b) does not exceed the surrender value of the policies;
             663          (10) a financial futures [contracts] contract used for hedging and not for speculation, as
             664      approved under rules adopted by the commissioner;
             665          (11) [investments in foreign securities of the classes] an investment in a foreign security
             666      of a class permitted under this section as required for compliance with Section 31A-18-103 ;
             667          (12) [investments] an investment permitted under Subsection 31A-18-102 (2);
             668          (13) an American depository [receipts] receipt not traded on one of the following
             669      exchanges:
             670          (a) New York;
             671          (b) American; or
             672          (c) NASDAQ;
             673          (14) [investments] an investment other than those listed in Subsections (1) through (13)


             674      that [are] is determined to be admitted in the Accounting Practices and Procedures Manual,
             675      published by the National Association of Insurance Commissioners; [and]
             676          (15) cash; and
             677          [(15) other investments as] (16) another investment the commissioner authorizes by
             678      rule.
             679          Section 10. Section 31A-18-106 is amended to read:
             680           31A-18-106. Investment limitations generally applicable.
             681          (1) The investment limitations listed in Subsections (1)(a) through (m) apply to [each]
             682      an insurer.
             683          (a) [(i) Except as provided in Subsection (1)(a)(ii), for investments] For an investment
             684      authorized under Subsection 31A-18-105 (1) that [are] is not amortizable under applicable
             685      valuation rules, the limitation is 5% of assets.
             686          [(ii) The limitation of Subsection (1)(a)(i) and the limitation of Subsection (2) do not
             687      apply to demand deposits and certificates of deposit in solvent banks and savings and loan
             688      institutions to the extent they are insured by a federal deposit insurance agency.]
             689          (b) For [investments] an investment authorized under Subsection 31A-18-105 (2), the
             690      limitation is 10% of assets.
             691          (c) For [investments] an investment authorized under Subsection 31A-18-105 (3), the
             692      limitation is 50% of assets.
             693          (d) For [investments] an investment authorized under Subsection 31A-18-105 (4)[,] that
             694      [are] is considered to be [investments in kinds of securities or evidences] an investment in a kind
             695      of security or evidence of debt pledged, [those investments are] the investment is subject to the
             696      class limitations applicable to the pledged [securities or evidences] security or evidence of debt.
             697          (e) For [investments] an investment authorized under Subsection 31A-18-105 (5), the
             698      limitation is 35% of assets.
             699          (f) For [investments] an investment authorized under Subsection 31A-18-105 (6), the
             700      limitation is:
             701          (i) 20% of assets for a life [insurers] insurer; and


             702          (ii) 50% of assets for a nonlife [insurers] insurer.
             703          (g) For [investments] an investment authorized under Subsection 31A-18-105 (7), the
             704      limitation is:
             705          (i) 5% of assets; or
             706          (ii) for [insurers] an insurer organized and operating under Chapter 7, Nonprofit Health
             707      Service Insurance Corporations, 25% of assets.
             708          (h) For [investments] an investment authorized under Subsection 31A-18-105 (8), the
             709      limitation is:
             710          (i) 20% of assets, inclusive of home office and branch office properties; or
             711          (ii) for [insurers] an insurer organized and operating under Chapter 7, Nonprofit Health
             712      Service Insurance Corporations, 35% of assets, inclusive of home office and branch office
             713      properties.
             714          (i) For [investments] an investment authorized under Subsection 31A-18-105 (10), the
             715      limitation is 1% of assets.
             716          (j) For [investments] an investment authorized under Subsection 31A-18-105 (11), the
             717      limitation is the greater of that permitted or required for compliance with Section 31A-18-103 .
             718          (k) Except as provided in Subsection (1)(l), an insurer's investments in subsidiaries is
             719      limited to 50% of the insurer's total adjusted capital. [Investments] An investment by an insurer
             720      in [its subsidiaries] a subsidiary includes:
             721          [(i) the insurer's loans, advances, and contributions to its subsidiaries; and]
             722          [(ii) the insurer's holding of bonds, notes, and stocks of its subsidiaries are included.]
             723          (i) a loan, advance, or contribution to a subsidiary by an insurer; and
             724          (ii) an insurer holding a bond, note, or stock of a subsidiary.
             725          (l) Under a plan of merger approved by the commissioner, the commissioner may allow
             726      an insurer any portion of its assets invested in an insurance subsidiary. The approved plan of
             727      merger shall require the acquiring insurer to conform its accounting for investments in
             728      subsidiaries to Subsection (1)(k) within a specified period that may not exceed five years.
             729          (m) For [investments] an investment authorized under Subsections 31A-18-105 (13) and


             730      (14), the aggregate limitation is 10% of assets.
             731          (2) The limits on investments listed in Subsections (2)(a) through (e) apply to each
             732      insurer.
             733          (a) (i) For all investments in a single entity, its affiliates, and subsidiaries, the limitation
             734      is 10% of assets, except that the limit imposed by this Subsection (2)(a) does not apply to:
             735          [(i) investments] (A) an investment in the government of the United States or its
             736      agencies;
             737          [(ii) investments] (B) an investment guaranteed by the government of the United
             738      States; [or]
             739          [(iii) investments] (C) an investment in the insurer's insurance subsidiaries[.]; or
             740          (D) a cash deposit that:
             741          (I) is cash;
             742          (II) is held by a depository institution, as defined in Section 7-1-103 , that:
             743          (Aa) is solvent;
             744          (Bb) is federally insured; and
             745          (Cc) subject to Subsection (2)(a)(ii), has a Tier 1 leverage ratio of at least 5%, if the
             746      depository institution is a bank as defined in Section 7-1-103 , or a ratio of Tier 1 capital to total
             747      assets of at least 5%, if the depository institution is not a bank; and
             748          (III) does not exceed the greater of:
             749          (Aa) .4 times the Tier 1 capital of the depository institution; or
             750          (Bb) the amount insured by a federal deposit insurance agency.
             751          (ii) The commissioner by rule made in accordance with Title 63, Chapter 46a, Utah
             752      Administrative Rulemaking Act, shall:
             753          (A) define "Tier 1 leverage ratio";
             754          (B) define "Tier 1 capital"; and
             755          (C) proscribe the method to calculate Tier 1 capital.
             756          (b) [Investments] An investment authorized by Subsection 31A-18-105 (3) shall comply
             757      with the requirements listed in this Subsection (2)(b).


             758          (i) (A) Except as provided in this Subsection (2)(b)(i), the amount of [any] a loan
             759      secured by a mortgage or deed of trust may not exceed 80% of the value of the real estate
             760      interest mortgaged, unless the excess over 80%:
             761          (I) is insured or guaranteed by:
             762          (Aa) the United States[, any];
             763          (Bb) a state of the United States[, any];
             764          (Cc) an instrumentality, agency, or political subdivision of the United States[, any of its
             765      states,] or a state; or
             766          (Dd) a combination of [any of these] entities described in this Subsection
             767      (2)(b)(i)(A)(I); or
             768          (II) is insured by an insurer approved by the commissioner and qualified to insure that
             769      type of risk in this state.
             770          (B) [Mortgage loans] A mortgage loan representing a purchase money [mortgages]
             771      mortgage acquired from the sale of real estate [are] is not subject to the limitation of Subsection
             772      (2)(b)(i)(A).
             773          (ii) Subject to Subsection (2)(b)(v), [loans or evidences] a loan or evidence of debt
             774      secured by real estate may only be secured by:
             775          (A) unencumbered real property that is located in the United States; or
             776          (B) an unencumbered interest in real property that is located in the United States.
             777          (iii) Evidence of debt secured by a first [mortgages or deeds] mortgage or deed of trust
             778      upon a leasehold [estates] estate shall require that:
             779          (A) the leasehold estate exceed the maturity of the loan by not less than 10% of the
             780      lease term;
             781          (B) the real estate not be otherwise encumbered; and
             782          (C) the mortgagee is entitled to be subrogated to all rights under the leasehold.
             783          (iv) Subject to Subsection (2)(b)(v):
             784          (A) participation in [any] a mortgage loan must:
             785          (I) be senior to other participants; and


             786          (II) give the holder substantially the rights of a first mortgagee; or
             787          (B) the interest of the insurer in the evidence of indebtedness must be of equal priority,
             788      to the extent of the interest, with other interests in the real property.
             789          (v) A fee simple or leasehold real estate or [any] an interest in [either of them] a fee
             790      simple or leasehold is not considered to be encumbered within the meaning of this chapter by
             791      reason of [any] a prior mortgage or trust deed held or assumed by the insurer as a lien on the
             792      property, if:
             793          (A) the total of the mortgages or trust deeds held does not exceed 70% of the value of
             794      the property; and
             795          (B) the security created by the prior mortgage or trust deed is a first lien.
             796          (c) [Loans] A loan permitted under Subsection 31A-18-105 (4) may not exceed 75% of
             797      the market value of the collateral pledged, except that [loans] a loan upon the pledge of a
             798      United States government [bonds] bond may be equal to the market [values] value of the
             799      pledge.
             800          (d) For an equity interest in a single real estate property authorized under Subsection
             801      31A-18-105 (8), the limitation is 5% of assets.
             802          (e) [Investments] An investment authorized under Subsection 31A-18-105 (10) shall be
             803      in connection with a potential [changes] change in the value of specifically identified:
             804          (i) [assets which] asset that the insurer owns; or
             805          (ii) [liabilities which] liability that the insurer has incurred.
             806          (3) The restrictions on investments listed in Subsections (3)(a) and (b) apply to each
             807      insurer.
             808          (a) Except for a financial futures [contracts] contract and real property acquired and
             809      occupied by the insurer for home and branch office purposes, a security or other investment is
             810      not eligible for purchase or acquisition under this chapter unless it is:
             811          (i) interest bearing or income paying; and
             812          (ii) not then in default.
             813          (b) A security is not eligible for purchase at a price above its market value.


             814          (4) Computation of percentage limitations under this section:
             815          (a) is based only upon the insurer's total qualified invested assets described in Section
             816      31A-18-105 and this section, as these assets are valued under Section 31A-17-401 ; and
             817          (b) excludes investments permitted under Section 31A-18-108 and Subsections
             818      31A-17-203 (2) and (3).
             819          (5) An insurer may not make an investment that, because the investment does not
             820      conform to Section 31A-18-105 and this section, has the result of rendering the insurer, under
             821      Chapter 17, Part 6, Risk-Based Capital, subject to proceedings under Chapter 27a, Insurer
             822      Receivership Act.
             823          (6) A pattern of persistent deviation from the investment diversification standards set
             824      forth in Section 31A-18-105 and this section may be grounds for a finding that the [person or]
             825      one or more persons with authority to make the insurer's investment decisions are
             826      "incompetent" as used in Subsection 31A-5-410 (3).
             827          (7) Section 77r-1 of the Secondary Mortgage Market Enhancement Act of 1984 does
             828      not apply to the purchase, holding, investment, or valuation limitations of assets of insurance
             829      companies subject to this chapter.
             830          Section 11. Section 31A-20-107 is amended to read:
             831           31A-20-107. Reinsurance.
             832          (1) (a) An authorized insurer writing a nonassessable [policies] policy may assume as a
             833      reinsurer [any risks] a risk it may write directly.
             834          (b) Subject to Chapters 5 through 14, Chapter 17, and to any limitation imposed on a
             835      foreign insurer by the law of its domicile, the commissioner may also authorize an insurer to
             836      assume, as a reinsurer, one or more designated classes of risks it is not authorized to write
             837      directly.
             838          (2) (a) Subject to Section 31A-5-508 , [any] an authorized insurer may cede or
             839      retrocede to [any]:
             840          (i) an insurer authorized to assume it under Subsection (1) [any] a liability it has
             841      undertaken on [risks] a risk lawfully written under its certificate of authority[. It may also cede


             842      or retrocede reinsurance to any]; and
             843          (ii) an authorized agency of the federal government or of this state. [Subject to Section
             844      31A-17-404 , the rules adopted by the commissioner under that section, and to Subsection (3),
             845      an]
             846          (b) An authorized insurer may [also] cede or retrocede reinsurance to an unauthorized
             847      insurer[.] subject to:
             848          (i) Sections 31A-17-404 and 31A-17-404.1 ;
             849          (ii) a rule made by the commissioner under a section listed in Subsection (2)(b)(i); and
             850          (iii) Subsection (3).
             851          (3) [No] A person may not knowingly cede reinsurance or permit or assist it to be
             852      ceded to [any] a reinsurer not in sound financial condition. If [the] a reinsurer satisfies one or
             853      more of the security factors under [Subsection 31A-17-404 (3)] Section 31A-17-404.1 , there is
             854      a rebuttable presumption that the reinsurer is in sound financial condition.
             855          (4) [Any] (a) An authorized reinsurer who knowingly assumes from an unauthorized
             856      insurer, [risks] a risk that may lawfully be written only by an authorized insurer, shall
             857      immediately report the facts of the transaction to the commissioner. [The]
             858          (b) (i) Subject to Subsection (4)(b)(ii), an assuming reinsurer described in Subsection
             859      (4)(a):
             860          (A) is liable for all taxes and penalties applicable under Sections 31A-3-301 ,
             861      31A-3-302 , and 31A-3-303 [, but]; and
             862          (B) may take credit for [their] the payment of a tax or penalty lapse under Subsection
             863      (4)(b)(i) in its settlement of accounts with the unauthorized ceding insurer[, unless].
             864          (ii) This Subsection (4)(b) does not apply if the assuming reinsurer's agreement with the
             865      ceding insurer [already took those] takes the taxes described in Subsection (4)(b)(i) into
             866      account.
             867          (5) (a) Except as provided under Subsection (5)(b), [any] an authorized reinsurer
             868      proposing to withdraw from writing a class of its business in Utah, except by nonrenewal of an
             869      existing [contracts at their] contract at its expiration, shall give the commissioner 60 days[']


             870      written notice of its intention. The authorized reinsurer may not withdraw until after those 60
             871      days [have lapsed] lapse.
             872          (b) This Subsection (5) does not apply if the withdrawing reinsurer writes an
             873      insignificant market share of that class of business in Utah. The commissioner shall define
             874      "insignificant market share" by rule.
             875          Section 12. Section 31A-20-108 is amended to read:
             876           31A-20-108. Single risk limitation.
             877          (1) This section applies to all lines of insurance, including ocean marine and
             878      reinsurance, except:
             879          (a) title insurance;
             880          (b) workers' compensation insurance;
             881          (c) occupational disease insurance; and
             882          (d) employers' liability insurance.
             883          (2) (a) Except as provided under Subsections (3) and (4) and under Section
             884      31A-20-109 , an [insurance company] insurer authorized to do an insurance business in Utah
             885      may not expose itself to loss on [any] a single risk in an amount exceeding 10% of its capital
             886      and surplus.
             887          (b) The commissioner may adopt rules to calculate surplus under this section.
             888          (c) [The] An insurer may deduct the portion of [any] a risk reinsured by a reinsurance
             889      contract worthy of a reserve credit under [Section] Sections 31A-17-404 [may not be included]
             890      through 31A-17-404.4 in determining the limitation of risk under this section.
             891          (3) (a) The commissioner may adopt rules, after hearings held with notice provided
             892      under Section 31A-2-303 , to specify the maximum exposure to which an assessable mutual may
             893      subject itself.
             894          (b) The rules described in Subsection (3)(a) may provide for classifications of insurance
             895      and insurers to preserve the solidity of insurers.
             896          (4) As used in this section, a "single risk" includes all losses reasonably expected as a
             897      result of the same event.


             898          (5) A company transacting fidelity or surety insurance may expose itself to a risk or
             899      hazard in excess of the amount prescribed in Subsection (2), if the commissioner, after
             900      considering all the facts and circumstances, approves the risk.
             901          Section 13. Section 31A-22-1201 is amended to read:
             902           31A-22-1201. Assumption agreement.
             903          [There is no] (1) Subject to Subsection (2), a credit for reinsurance ceded under Section
             904      31A-17-404 , 31A-17-404.1 , or 31A-17-404.2 , is not allowed unless, in addition to meeting the
             905      [other] requirements [stated under] of Section 31A-17-404 , 31A-17-404.1 , or 31A-17-404.2 ,
             906      the reinsurance agreement provides [that] in substance that if the ceding insurer is insolvent, the
             907      reinsurance [shall be] is payable by the assuming insurer:
             908          (a) on the basis of the liability of the ceding insurer under the contract or contracts
             909      reinsured;
             910          (b) without diminution because of the insolvency of the ceding insurer; and
             911          (c) directly to the ceding insurer or to its domiciliary liquidator or receiver [except
             912      where:].
             913          (2) Subsection (1) applies except if:
             914          [(1) the contract] (a) a contract specifically provides another payee of [such] the
             915      insurance in the event of the insolvency of the ceding insurer; or
             916          [(2)] (b) the assuming insurer, with the consent of the one or more direct [insured or]
             917      insureds [has assumed such], assumes the policy obligations of the ceding insurer:
             918          (i) as direct obligations of the assuming insurer to the payees under [such] the policies;
             919      and
             920          (ii) in substitution for the obligations of the ceding insurer to [such] the payees.
             921          Section 14. Section 31A-22-1202 is amended to read:
             922           31A-22-1202. Other reinsurance contracts.
             923          (1) If there is no assumption agreement under Subsection 31A-22-1201 (2), the
             924      reinsurer's sole obligation is to the ceding insurer.
             925          (2) No guaranty [or] fund, security fund, or any other person, except the estate of the


             926      ceding insurer, has [any] a claim against [the] a reinsurer.
             927          (3) Subject to contractual rights of offset, if [the] a ceding insurer is put into
             928      receivership, the reinsurer shall pay any amount due under the contract in full, without reduction
             929      because of the receivership[,]:
             930          (a) to the domiciliary receiver if there is one[,]; or[, if not, then to any]
             931          (b) if there is not domiciliary receiver, to a Utah receiver.
             932          Section 15. Effective date.
             933          This bill takes effect on July 1, 2008.
             934          Section 16. Revisor instructions.
             935          It is the intent of the Legislature that in preparing the Utah Code database for
             936      publication, the Office of Legislative Research and General Counsel shall replace the reference
             937      in Section 31A-17-404.4 from "this bill" to the bill's designated chapter number in the Laws of
             938      Utah.


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