Ala. Admin. Code r. 482-1-085-.02

Current through Register Vol. 43, No. 1, October 31, 2024

Section 482-1-085-.02 - Preamble

(1) The Alabama Insurance Department recognizes that licensed insurers routinely enter into reinsurance agreements that yield legitimate relief to the ceding insurer from strain to surplus.

(2) However, it is improper for a licensed insurer, in the capacity of ceding insurer, to enter into reinsurance agreements for the principal purpose of producing significant surplus aid for the ceding insurer, typically on a temporary basis, while not transferring all of the significant risks inherent in the business being reinsured. In substance or effect, the expected potential liability to the ceding insurer remains basically unchanged by the reinsurance transaction, notwithstanding certain risk elements in the reinsurance agreement, such as catastrophic mortality or extraordinary survival. The terms of such agreements referred to herein and described in Rule 482-1-085-.04 violate:

(a) Section 27-37-4 and 27-3-26, Code of Ala. 1975, as amended, relating to financial statements which do not properly reflect the financial condition of the ceding insurer;

(b) Section 27-5-12 and 27-37-1(8), Code of Ala. 1975, as amended, relating to reinsurance reserve credits, thus resulting in a ceding insurer improperly reducing liabilities or establishing assets for reinsurance ceded; and

(c) Section 27-3-21, Code of Ala. 1975, as amended, relating to creating a situation that may be hazardous to policyholders and the people of this State.

Author: Commissioner of Insurance

Ala. Admin. Code r. 482-1-085-.02

Effective October 20, 1988. Revised: July 5, 1994; effective July 15, 1994. Revised: December 20, 1996; effective January 1, 1997. Filed for codification in the Alabama Administrative Code by the Department of Insurance on July 5, 2005, pursuant to the Code of Ala. 1975, § 27-7-43.

Statutory Authority:Code of Ala. 1975, § 27-2-17.