Session Law

Identifying Information:L. 2002 ch. 020
Other Identifying Information:2002 Senate Bill 390
Tax Type:Other
Brief Description:An Act concerning insurance; relating to reinsurance matters; amendingK.S.A. 40-221a and repealing the existing section.
Keywords:


Body:

CHAPTER 20

SENATE BILL No. 390

An Act concerning insurance; relating to reinsurance matters; amending

K.S.A. 40-221a and repealing the existing section.


Be it enacted by the Legislature of the State of Kansas:

Section 1. K.S.A. 40-221a is hereby amended to read as follows: 40-

221a. (a) Any insurance company organized under the laws of this state

may (1) with the consent of the commissioner of insurance, cede all of

its risks to any other solvent insurance company authorized to transact

business in this state or accept all of the risks of any other company, (2)

accept all or any part of an individual risk or all or any part of a particular

class of risks which it is authorized to insure, and (3) cede all or any part

of an individual risk or all or any part of a particular class of risks to

another solvent insurer or insurers having the power to accept such re-

insurance.

(b) Any insurance company organized under the laws of this state

may take credit as an asset or as a deduction from loss and unearned

premium reserves on such ceded risks to the extent reinsured by an in-

surer or insurers authorized to transact business in this state, but such

credit on ceded risks reinsured by any insurer which is not authorized to

transact business in this state may be taken in an amount not exceeding:

(1) The amount of deposits by, and funds withheld from, the assum-

ing insurer pursuant to express provision therefor in the reinsurance con-

tract, as security for the payment of the obligations thereunder, if such

deposits or funds are held subject to withdrawal by, and under the control

of, the ceding insurer or are placed in trust for such purposes in a bank

which is insured by the federal deposit insurance corporation or its suc-

cessor qualified United States financial institution, if withdrawals from

such trust cannot be made without the consent of the ceding company;

(2) the amount of a clean and irrevocable letter of credit issued by a

bank which is insured by the federal deposit insurance corporation or its

successor qualified United States financial institution if such letter of

credit is initially issued for a term of at least one year and by its terms is

automatically renewed at each expiration date for at least an additional

one-year term unless at least 30 days prior written notice of intention not

to renew is given to the ceding company by the issuing bank qualified

United States financial institution or the assuming company and provided

that such letter of credit is issued under arrangements satisfactory to the

commissioner of insurance as constituting security to the ceding insurer

substantially equal to that of a deposit under paragraph (1) of this sub-

section; or

(3) the amount of loss and unearned premium reserves on such ceded

risks to an assuming insurer which maintains a trust fund in a qualified

United States financial institution, as defined in (b)(3)(D), for the pay-

ment of the valid claims of its United States ceding insurers, their assigns

and successors in interest. The assuming insurer shall report annually to

the commissioner information substantially the same as that required to

be reported on the national association of insurance commissioners an-

nual statement form by licensed insurers to enable the commissioner to

determine the sufficiency of the trust fund. In the case of a single assum-

ing insurer, the trust shall consist of a trusteed account representing the

assuming insurer's liability attributable to business written in the United

States and, in addition, the assuming insurer shall maintain a trusteed

surplus of not less than $20,000,000. In the case of a group including

incorporated and individual unincorporated underwriters, the trust shall

consist of a trusteed account representing the group's liabilities attribut-

able to business written in the United States and, in addition, the group

shall maintain a trusteed surplus of which $100,000,000 shall be held

jointly for the benefit of United States ceding insurers of any member of

the group; the incorporated members of the group shall not be engaged

in any business other than underwriting as a member of the group and

shall be subject to the same level of solvency regulation and control by

the group's domiciliary regulator as are the unincorporated members; and

the group shall make available to the commissioner an annual certification

of the solvency of each underwriter by the group's domiciliary regulator

and its independent public accountants.

(A) Such trust must be in a form approved by the commissioner of

insurance. The trust instrument shall provide that contested claims shall

be valid and enforceable upon the final order of any court of competent

jurisdiction in the United States. The trust shall vest legal title to its assets

in the trustees of the trust for its United States ceding insurers, their

assigns and successors in interest. The trust and the assuming group or

insurer shall be subject to examination as determined by the commis-

sioner. The trust, described herein, must remain in effect for as long as

the assuming group or insurer shall have outstanding obligations due un-

der the reinsurance agreements subject to the trust.

(B) No later than February 28 of each year the trustees of the trust

shall report to the commissioner in writing setting forth the balance of

the trust and listing the trust's investments at the preceding year end and

shall certify the date of termination of the trust, if so planned, or certify

that the trust shall not expire prior to the next following December 31.

(C) The credit authorized under subsection (b)(3) shall not be al-

lowed unless the assuming group or insurer agrees in the reinsurance

agreements:

(i) That in the event of the failure of the assuming group or insurer

to perform its obligations under the terms of the reinsurance agreement,

the assuming group or insurer, at the request of the ceding insurer, shall

submit to the jurisdiction of any court of competent jurisdiction in any

state of the United States, will comply with all requirements necessary to

give such court jurisdiction, and will abide by the final decision of such

court or of any appellate court in the event of an appeal; and

(ii) to designate the commissioner or a designated attorney as its true

and lawful attorney upon whom may be served any lawful process in any

action, suit or proceeding instituted by or on behalf of the ceding com-

pany.

(iii) This provision is not intended to conflict with or override the

obligation of the parties to a reinsurance agreement to arbitrate their

disputes, if such an obligation to do so is created in the agreement.

(D) (i) For the purposes of paragraphs (1) and (3) of subsection (b),

a ``qualified United States financial institution'' means, for purposes of

those provisions of this law specifying those institutions that are eligible

to act as a fiduciary of a trust, an institution that:

(i) (aa) Is organized, or (in the case of a U.S. branch or agency office

of a foreign banking organization) licensed, under the laws of the United

States or any state thereof and has been granted authority to operate with

fiduciary powers; and

(ii) (bb) is regulated, supervised and examined by federal or state

authorities having regulatory authority over banks and trust companies.

The foregoing provisions of paragraphs (1), (2) and (3) of subsection

(b) shall not apply to a domestic title insurance company subject to the

provisions of K.S.A. 40-1107a and amendments thereto.

(ii) For the purposes of paragraph (2) of subsection (b), ``qualified

United States financial institution'' means, for the purpose of those pro-

visions of this law specifying those institutions that are eligible to issue a

letter of credit, an institution that:

(aa) Is organized or (in the case of a United States office of a foreign

banking organization) licensed, under the laws of the United States or any

state thereof;

(bb) is regulated, supervised and examined by United States federal

or state authorities having regulatory authority over banks and trust com-

panies; and

(cc) has been determined by the insurance commissioner to meet such

standards of financial condition and standing as are considered necessary

and appropriate to regulate the quality of financial institutions whose

letters of credit will be acceptable to the commissioner.

In making determinations under this clause, the commissioner may con-

sult with the securities valuation office of the national association of in-

surance commissioners.

(c) No credit shall be allowed, as an admitted asset or deduction from

liability, to any ceding insurer organized under the laws of this state for

reinsurance, unless the reinsurance contract provides, in substance, that

in the event of the insolvency of the ceding insurer, the reinsurance shall

be payable under a contract reinsured by the assuming insurer on the

basis of the liability of the ceding company under the contract or contracts

reinsured, as approved by the liquidation court, without diminution be-

cause of the insolvency of the ceding company. Any reinsurance agree-

ment entered into with a domestic insurer which may be canceled on less

than 90 days' notice, and which cancellation would constitute a material

cancellation as defined by K.S.A. 40-2,156a and amendments thereto,

must provide in the reinsurance agreement, in substance, for a run-off of

the reinsurance in force at the date of cancellation, unless the agreement

is canceled for nonpayment of premium or fraud in the inducement.

Reinsurance payments shall be made directly to the ceding insurer or to

its domiciliary liquidator except: (1) Where the reinsurance contract or

policy reinsured specifically provides another payee of such reinsurance

in the event of the insolvency of the ceding insurer; or (2) where the

assuming insurer, with the consent of the direct insured, has assumed

such policy obligations of the ceding insurer as direct obligations of the

assuming insurer to the payees under such policies and in substitution

for the obligations of the ceding insurer to such payees.

(d) The reinsurance agreement may provide that the domiciliary li-

quidator of an insolvent ceding insurer shall give written notice to the

assuming insurer of the pendency of a claim against such ceding insurer

on the contract reinsured within a reasonable time after such claim is

filed in the liquidation proceeding. During the pendency of such claim,

any assuming insurer may investigate such claim and interpose, at its own

expense, in the proceeding where such claim is to be adjudicated any

defenses which it deems available to the ceding insurer, or its liquidator.

Such expense may be filed as a claim against the insolvent ceding insurer

to the extent of a proportionate share of the benefit which may accrue to

the ceding insurer solely as a result of the defense undertaken by the

assuming insurer. Where two or more assuming insurers are involved in

the same claim and a majority in interest elect to interpose a defense to

such claim, the expense shall be apportioned in accordance with the terms

of the reinsurance agreement as though such expense had been incurred

by the ceding insurer.

Sec. 2. K.S.A. 40-221a is hereby repealed.

Sec. 3. This act shall take effect and be in force from and after its

publication in the statute book.

Approved April 4, 2002.


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Date Composed: 10/10/2002 Date Modified: 10/10/2002