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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
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
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:
26 Other Special Clauses:
27 This bill takes effect on July 1, 2008.
28 This bill provides revisor instructions.
29 Utah Code Sections Affected:
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
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
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 [
52 pleading, or [
54 (a) [
55 do business in this state, and thereafter in [
56 transaction having a connection with this state;
57 (b) [
58 contract of insurance that is subject to the surplus lines law, or out of a certificate, cover note,
59 or other confirmation of that type of insurance;
60 (c) [
61 unauthorized [
62 Subsection 31A-15-102 (2), for a proceeding arising out of [
63 the unauthorized insurance law;
64 (d) [
65 administrator, while authorized to do business in this state, and thereafter in [
66 arising from or related to [
67 (e) [
68 31A-17-404 [
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) [
72 (b) [
74 (c) [
75 prohibited by Section 31A-15-103 ; and
76 (d) [
77 (3) The commissioner and lieutenant governor are also agents for [
79 administrator, personal representative, receiver, trustee, or other successor in interest of [
81 (4) [
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 [
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 [
91 risk located in this state, subject to the limitations and requirements of this section.
92 (2) (a) For [
94 (i) inspect the risks to be insured[
96 (ii) collect premiums;
97 (iii) adjust losses; and
98 (iv) do another act reasonably incidental to the contract[
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 [
104 state on behalf of an insurer that has no certificate of authority.
105 (b) [
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 [
115 (4) For [
116 insurer is subject to Sections 31A-23a-402 and 31A-23a-403 and the rules adopted under those
118 (5) A nonadmitted insurer may not issue workers' compensation insurance coverage to
120 to [
121 (6) (a) The commissioner may by rule prohibit making [
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 [
125 limitation on and create special procedures for making [
126 (1) for a specified class of insurance if:
127 (i) there have been abuses of placements in the class; or [
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 [
131 under Subsection (1) and all insurance producers from dealing with the insurer if:
132 (i) the insurer [
133 (A) this section[
134 (B) Section 31A-4-102 , 31A-23a-402 , or 31A-26-303 [
135 (C) a rule adopted under [
136 (6)(c)(i)(A) or (B);
137 (ii) the insurer [
138 31A-3-301 ; or
139 (iii) the commissioner has reason to believe that the insurer is:
140 (A) in an unsound condition [
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
145 (A) solidity the commissioner doubts[
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 [
152 department for [
153 issuance of, [
154 (e) A foreign unauthorized insurer shall be listed on the commissioner's "reliable" list
155 only if the unauthorized insurer:
156 (i) [
157 (ii) [
159 (iii) (A) [
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 [
163 where [
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
167 (II) maintains in the United States an irrevocable trust fund in either a national bank or
168 a 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:
171 insurer's policyholders in the United States;
173 character and quality as those which are "qualified assets" under Section 31A-17-201 ; and
175 as acceptable security under [
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 [
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) [
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 [
191 (ii) an insurer engaging in unfair practices[
192 (iii) an otherwise substandard [
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 [
197 (ii) explains the need to place the business with that insurer.
198 (c) A copy of [
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 [
202 (e) An insurer on the "doubtful or objectionable" list under Subsection (6)(d) [
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 [
210 (C) the premium taxes to be collected from the policyholder[
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 [
215 (c) A policy issued under [
216 the policy the following statement: "The insurer issuing this policy does not hold a certificate
217 of 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, [
221 producer shall promptly deliver to the policyholder or [
222 the insurance consisting either of:
223 (a) the policy as issued by the insurer; or[
224 (b) if the policy is not [
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 [
228 section to as much of the regulation provided by this title as is required for a comparable
230 (11) (a) [
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
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 [
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[
249 (B) evidenced by a contract, on a form provided by the commissioner, between the
250 authorized advisory organization and the department.
251 (d) [
252 shall collect a stamping fee of an amount not to exceed 1% of the policy premium payable in
253 connection with the transaction. [
254 (B) A stamping fee collected by the commissioner shall be deposited in the General
256 (C) The commissioner shall establish [
257 (ii) A stamping fee collected by an advisory organization [
258 advisory organization to be used in paying the expenses of the advisory organization.
259 (iii) Liability for paying [
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
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. [
265 (v) A stamping fee relative to [
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) [
275 Section 3. Section 31A-17-404 is amended to read:
276 31A-17-404. Credit allowed a domestic ceding insurer against reserves for
278 (1) [
280 only if the reinsurer meets the requirements of Subsection (3), (4), (5), (6), or (7), subject to the
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
291 (i) in its state or 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) [
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 [
301 (ii) clearly reflects:
302 (A) the amount and nature of risk transferred; and [
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.
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
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
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
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
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
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,
458 amendment, or renewal date on or after August 1, 1995, the trust shall consist of a trusteed
459 account in an amount not less than the group's several liabilities attributable to business ceded
460 by the one or 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
465 written 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
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;
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
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
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
493 security 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 [
506 Utah courts by [
507 (a) (i) being an admitted insurer[
508 (ii) submitting to jurisdiction under Section 31A-2-309 ;
509 (b) having irrevocably appointed the commissioner as [
510 insurer's agent for service of process in [
511 reinsurance, which appointment is made under Section 31A-2-309 ; or
512 (c) agreeing in the reinsurance contract:
513 (i) that [
514 obligations under the terms of the reinsurance [
515 the request of the ceding insurer, shall:
516 (A) submit to the jurisdiction of [
517 of the United States[
518 (B) comply with all requirements necessary to give the court jurisdiction[
519 (C) abide by the final decision of the court or of [
520 an appeal; and
521 (ii) to designate the commissioner or a [
522 licensed to practice law in this state as its [
524 ceding company.
526 not override [
527 under the reinsurance [
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
533 described 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
559 insurer to an assuming insurer that does not meet the requirements of Section 31A-17-404 is
560 allowed in 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
562 or 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
568 control 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;
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
586 shall continue to be acceptable as security until the sooner of the day on which the letter of
587 credit 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
597 ceding insurer upon a finding by the commissioner that one or more of the following do not
598 satisfy the credit for reinsurance requirements of this chapter applicable to a ceding insurer
599 domiciled in 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
605 this 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 [
618 to implement it apply to all insurers authorized to do business in this state, including
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) [
631 (a) [
633 described in Subsection (1)(a)[
637 (2) an equipment trust [
638 is an adequately secured [
639 (a) evidencing an interest in transportation equipment that is located wholly or in part
640 within the United States[
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) [
644 (a) one or more mortgages;
645 (b) one or more trust deeds; or
646 (c) [
647 real estate located in the United States;
648 (4) [
649 debt eligible for investment under this section;
650 (5) a preferred [
651 (6) (a) a common [
652 (b) an American depository [
654 (i) New York;
655 (ii) American; or
656 (iii) NASDAQ;
657 (7) real estate [
658 (8) real estate in the United States [
659 (9) [
660 an amount that:
661 (a) is adequately secured by the policies; and [
662 (b) does not exceed the surrender value of the policies;
663 (10) a financial futures [
664 approved under rules adopted by the commissioner;
665 (11) [
666 security of a class permitted under this section as required for compliance with Section
667 31A-18-103 ;
668 (12) [
669 (13) an American depository [
671 (a) New York;
672 (b) American; or
673 (c) NASDAQ;
674 (14) [
675 (13) that [
676 Manual, published by the National Association of Insurance Commissioners; [
677 (15) cash; and
680 Section 10. Section 31A-18-106 is amended to read:
681 31A-18-106. Investment limitations generally applicable.
682 (1) The investment limitations listed in Subsections (1)(a) through (m) apply to [
683 an insurer.
684 (a) [
685 authorized under Subsection 31A-18-105 (1) that [
686 valuation rules, the limitation is 5% of assets.
690 (b) For [
691 limitation is 10% of assets.
692 (c) For [
693 limitation is 50% of assets.
694 (d) For [
696 kind of security or evidence of debt pledged, [
697 to the class limitations applicable to the pledged [
698 of debt.
699 (e) For [
700 limitation is 35% of assets.
701 (f) For [
702 limitation is:
703 (i) 20% of assets for a life [
704 (ii) 50% of assets for a nonlife [
705 (g) For [
706 limitation is:
707 (i) 5% of assets; or
708 (ii) for [
709 Service Insurance Corporations, 25% of assets.
710 (h) For [
711 limitation is:
712 (i) 20% of assets, inclusive of home office and branch office properties; or
713 (ii) for [
714 Service Insurance Corporations, 35% of assets, inclusive of home office and branch office
716 (i) For [
717 limitation is 1% of assets.
718 (j) For [
719 limitation is the greater of that permitted or required for compliance with Section 31A-18-103 .
720 (k) Except as provided in Subsection (1)(l), an insurer's investments in subsidiaries is
721 limited to 50% of the insurer's total adjusted capital. [
722 insurer in [
725 (i) a loan, advance, or contribution to a subsidiary by an insurer; and
726 (ii) an insurer holding a bond, note, or stock of a subsidiary.
727 (l) Under a plan of merger approved by the commissioner, the commissioner may
728 allow an insurer any portion of its assets invested in an insurance subsidiary. The approved
729 plan of merger shall require the acquiring insurer to conform its accounting for investments in
730 subsidiaries to Subsection (1)(k) within a specified period that may not exceed five years.
731 (m) For [
732 and (14), the aggregate limitation is 10% of assets.
733 (2) The limits on investments listed in Subsections (2)(a) through (e) apply to each
735 (a) (i) For all investments in a single entity, its affiliates, and subsidiaries, the
736 limitation is 10% of assets, except that the limit imposed by this Subsection (2)(a) does not
737 apply to:
741 States; [
743 (D) a cash deposit that:
744 (I) is cash;
745 (II) is held by a depository institution, as defined in Section 7-1-103 , that:
746 (Aa) is solvent;
747 (Bb) is federally insured; and
748 (Cc) subject to Subsection (2)(a)(ii), has a Tier 1 leverage ratio of at least 5%, if the
749 depository institution is a bank as defined in Section 7-1-103 , or a ratio of Tier 1 capital to total
750 assets of at least 5%, if the depository institution is not a bank; and
751 (III) does not exceed the greater of:
752 (Aa) .4 times the Tier 1 capital of the depository institution; or
753 (Bb) the amount insured by a federal deposit insurance agency.
754 (ii) The commissioner by rule made in accordance with Title 63, Chapter 46a, Utah
755 Administrative Rulemaking Act, shall:
756 (A) define "Tier 1 leverage ratio";
757 (B) define "Tier 1 capital"; and
758 (C) proscribe the method to calculate Tier 1 capital.
759 (b) [
760 comply with the requirements listed in this Subsection (2)(b).
761 (i) (A) Except as provided in this Subsection (2)(b)(i), the amount of [
762 secured by a mortgage or deed of trust may not exceed 80% of the value of the real estate
763 interest mortgaged, unless the excess over 80%:
764 (I) is insured or guaranteed by:
765 (Aa) the United States[
766 (Bb) a state of the United States[
767 (Cc) an instrumentality, agency, or political subdivision of the United States[
769 (Dd) a combination of [
770 (2)(b)(i)(A)(I); or
771 (II) is insured by an insurer approved by the commissioner and qualified to insure that
772 type of risk in this state.
773 (B) [
774 mortgage acquired from the sale of real estate [
775 Subsection (2)(b)(i)(A).
776 (ii) Subject to Subsection (2)(b)(v), [
777 secured by real estate may only be secured by:
778 (A) unencumbered real property that is located in the United States; or
779 (B) an unencumbered interest in real property that is located in the United States.
780 (iii) Evidence of debt secured by a first [
781 upon a leasehold [
782 (A) the leasehold estate exceed the maturity of the loan by not less than 10% of the
783 lease term;
784 (B) the real estate not be otherwise encumbered; and
785 (C) the mortgagee is entitled to be subrogated to all rights under the leasehold.
786 (iv) Subject to Subsection (2)(b)(v):
787 (A) participation in [
788 (I) be senior to other participants; and
789 (II) give the holder substantially the rights of a first mortgagee; or
790 (B) the interest of the insurer in the evidence of indebtedness must be of equal priority,
791 to the extent of the interest, with other interests in the real property.
792 (v) A fee simple or leasehold real estate or [
793 simple or leasehold is not considered to be encumbered within the meaning of this chapter by
794 reason of [
795 property, if:
796 (A) the total of the mortgages or trust deeds held does not exceed 70% of the value of
797 the property; and
798 (B) the security created by the prior mortgage or trust deed is a first lien.
799 (c) [
800 the market value of the collateral pledged, except that [
801 United States government [
803 (d) For an equity interest in a single real estate property authorized under Subsection
804 31A-18-105 (8), the limitation is 5% of assets.
805 (e) [
806 in connection with a potential [
807 (i) [
808 (ii) [
809 (3) The restrictions on investments listed in Subsections (3)(a) and (b) apply to each
811 (a) Except for a financial futures [
812 occupied by the insurer for home and branch office purposes, a security or other investment is
813 not eligible for purchase or acquisition under this chapter unless it is:
814 (i) interest bearing or income paying; and
815 (ii) not then in default.
816 (b) A security is not eligible for purchase at a price above its market value.
817 (4) Computation of percentage limitations under this section:
818 (a) is based only upon the insurer's total qualified invested assets described in Section
819 31A-18-105 and this section, as these assets are valued under Section 31A-17-401 ; and
820 (b) excludes investments permitted under Section 31A-18-108 and Subsections
821 31A-17-203 (2) and (3).
822 (5) An insurer may not make an investment that, because the investment does not
823 conform to Section 31A-18-105 and this section, has the result of rendering the insurer, under
824 Chapter 17, Part 6, Risk-Based Capital, subject to proceedings under Chapter 27a, Insurer
825 Receivership Act.
826 (6) A pattern of persistent deviation from the investment diversification standards set
827 forth in Section 31A-18-105 and this section may be grounds for a finding that the [
828 one or more persons with authority to make the insurer's investment decisions are
829 "incompetent" as used in Subsection 31A-5-410 (3).
830 (7) Section 77r-1 of the Secondary Mortgage Market Enhancement Act of 1984 does
831 not apply to the purchase, holding, investment, or valuation limitations of assets of insurance
832 companies subject to this chapter.
833 Section 11. Section 31A-20-107 is amended to read:
834 31A-20-107. Reinsurance.
835 (1) (a) An authorized insurer writing a nonassessable [
836 reinsurer [
837 (b) Subject to Chapters 5 through 14, Chapter 17, and to any limitation imposed on a
838 foreign insurer by the law of its domicile, the commissioner may also authorize an insurer to
839 assume, as a reinsurer, one or more designated classes of risks it is not authorized to write
841 (2) (a) Subject to Section 31A-5-508 , [
842 retrocede to [
843 (i) an insurer authorized to assume it under Subsection (1) [
844 undertaken on [
846 (ii) an authorized agency of the federal government or of this state. [
849 (b) An authorized insurer may [
851 (i) Sections 31A-17-404 and 31A-17-404.1 ;
852 (ii) a rule made by the commissioner under a section listed in Subsection (2)(b)(i); and
853 (iii) Subsection (3).
854 (3) [
855 ceded to [
856 more of the security factors under [
857 a rebuttable presumption that the reinsurer is in sound financial condition.
858 (4) [
859 insurer, [
860 immediately report the facts of the transaction to the commissioner. [
861 (b) (i) Subject to Subsection (4)(b)(ii), an assuming reinsurer described in Subsection
863 (A) is liable for all taxes and penalties applicable under Sections 31A-3-301 ,
864 31A-3-302 , and 31A-3-303 [
865 (B) may take credit for [
866 (4)(b)(i) in its settlement of accounts with the unauthorized ceding insurer[
867 (ii) This Subsection (4)(b) does not apply if the assuming reinsurer's agreement with
868 the ceding insurer [
870 (5) (a) Except as provided under Subsection (5)(b), [
871 proposing to withdraw from writing a class of its business in Utah, except by nonrenewal of an
872 existing [
873 written notice of its intention. The authorized reinsurer may not withdraw until after those 60
874 days [
875 (b) This Subsection (5) does not apply if the withdrawing reinsurer writes an
876 insignificant market share of that class of business in Utah. The commissioner shall define
877 "insignificant market share" by rule.
878 Section 12. Section 31A-20-108 is amended to read:
879 31A-20-108. Single risk limitation.
880 (1) This section applies to all lines of insurance, including ocean marine and
881 reinsurance, except:
882 (a) title insurance;
883 (b) workers' compensation insurance;
884 (c) occupational disease insurance; and
885 (d) employers' liability insurance.
886 (2) (a) Except as provided under Subsections (3) and (4) and under Section
887 31A-20-109 , an [
888 may not expose itself to loss on [
889 and surplus.
890 (b) The commissioner may adopt rules to calculate surplus under this section.
891 (c) [
892 contract worthy of a reserve credit under [
893 through 31A-17-404.4 in determining the limitation of risk under this section.
894 (3) (a) The commissioner may adopt rules, after hearings held with notice provided
895 under Section 31A-2-303 , to specify the maximum exposure to which an assessable mutual
896 may subject itself.
897 (b) The rules described in Subsection (3)(a) may provide for classifications of
898 insurance and insurers to preserve the solidity of insurers.
899 (4) As used in this section, a "single risk" includes all losses reasonably expected as a
900 result of the same event.
901 (5) A company transacting fidelity or surety insurance may expose itself to a risk or
902 hazard in excess of the amount prescribed in Subsection (2), if the commissioner, after
903 considering all the facts and circumstances, approves the risk.
904 Section 13. Section 31A-22-1201 is amended to read:
905 31A-22-1201. Assumption agreement.
907 31A-17-404 , 31A-17-404.1 , or 31A-17-404.2 , is not allowed unless, in addition to meeting the
909 the reinsurance agreement provides [
910 the reinsurance [
911 (a) on the basis of the liability of the ceding insurer under the contract or contracts
913 (b) without diminution because of the insolvency of the ceding insurer; and
914 (c) directly to the ceding insurer or to its domiciliary liquidator or receiver [
916 (2) Subsection (1) applies except if:
918 insurance in the event of the insolvency of the ceding insurer; or
920 insureds [
921 (i) as direct obligations of the assuming insurer to the payees under [
923 (ii) in substitution for the obligations of the ceding insurer to [
924 Section 14. Section 31A-22-1202 is amended to read:
925 31A-22-1202. Other reinsurance contracts.
926 (1) If there is no assumption agreement under Subsection 31A-22-1201 (2), the
927 reinsurer's sole obligation is to the ceding insurer.
928 (2) No guaranty [
929 ceding insurer, has [
930 (3) Subject to contractual rights of offset, if [
931 receivership, the reinsurer shall pay any amount due under the contract in full, without
932 reduction because of the receivership[
933 (a) to the domiciliary receiver if there is one[
934 (b) if there is not domiciliary receiver, to a Utah receiver.
935 Section 15. Effective date.
936 This bill takes effect on July 1, 2008.
937 Section 16. Revisor instructions.
938 It is the intent of the Legislature that in preparing the Utah Code database for
939 publication, the Office of Legislative Research and General Counsel shall replace the reference
940 in Section 31A-17-404.4 from "this bill" to the bill's designated chapter number in the Laws of
Legislative Review Note
as of 1-16-08 12:23 PM