NAC681A.320. Reinsurance agreement entered into in conjunction with trust agreement and establishment of trust account: Acceptable conditions.

A reinsurance agreement entered into in conjunction with a trust agreement and the establishment of a trust account may:

     1. Require the assuming insurer to enter into a trust agreement and establish a trust account for the benefit of the ceding insurer and specify what the trust agreement is to cover;

     2. Require the assuming insurer, before he or she deposits assets with the trustee, to execute assignments or endorsements in blank, or to transfer legal title to the trustee of all shares, obligations or any other assets requiring assignments, so that the ceding insurer, or the trustee upon the direction of the ceding insurer, may whenever necessary negotiate the assets without the consent or signature of the assuming insurer or any other entity;

     3. Require that all settlements of account between the ceding insurer and the assuming insurer be made in cash or its equivalent;

     4. Stipulate that the assuming insurer and the ceding insurer agree that the assets in the trust account, which was established pursuant to the provisions of the reinsurance agreement, may be withdrawn by the ceding insurer at any time, notwithstanding any other provisions in the reinsurance agreement, and must be used and applied by the ceding insurer or its successor in interest by operation of law, including, without limitation, any liquidator, rehabilitator, receiver or conservator, without diminution because of insolvency on the part of the ceding insurer or the assuming insurer, only:

     (a) To reimburse the ceding insurer for the assuming insurer’s share of premiums returned to the owners of policies reinsured under the reinsurance agreement because of cancellations of such policies;

     (b) To reimburse the ceding insurer for the assuming insurer’s share of surrenders and benefits or losses paid by the ceding insurer pursuant to the provisions of the policies reinsured under the reinsurance agreement;

     (c) To fund an account with the ceding insurer in an amount at least equal to the deduction, for reinsurance ceded, from the ceding insurer’s liabilities for policies ceded under the agreement. The account must include, but is not limited to, amounts for policy reserves, claims and losses incurred, including losses incurred but not reported, loss adjustment expenses and unearned premium reserves; and

     (d) To pay any other amounts the ceding insurer claims are due under the reinsurance agreement;

     5. Grant the assuming insurer the right to seek approval, which may not be unreasonably or arbitrarily withheld, from the ceding insurer to withdraw from the trust account any of the trust assets and transfer those assets to the assuming insurer if:

     (a) At the time of withdrawal, the assuming insurer replaces the withdrawn assets with other qualified assets having a market value equal to the market value of the assets withdrawn so as to maintain at all times the deposit in the amount required by the trust agreement; or

     (b) After withdrawal and transfer, the market value of the trust account is not less than 102 percent of the required amount;

     6. Provide for:

     (a) The return of any amount withdrawn for the purposes specified in paragraphs (a), (b) and (c) of subsection 4 which are in excess of the actual amounts required for those purposes;

     (b) The return of any amount withdrawn for the purpose specified in paragraph (d) of subsection 4 which is subsequently determined not to be due under the reinsurance agreement; and

     (c) Interest payments, at a rate not in excess of the prime rate of interest at the time of withdrawal, on the amounts held pursuant to paragraph (c) of subsection 4; and

     7. Permit the award by any arbitration panel or court of competent jurisdiction of:

     (a) Interest at a rate different from the rate provided in paragraph (c) of subsection 6;

     (b) Court or arbitration costs;

     (c) Attorney’s fees; and

     (d) Any other reasonable expenses.

     (Added to NAC by Comm’r of Insurance, eff. 6-28-96; A by R027-02, 5-31-2002)