Section 2303.14 - Form of Agreements(a) This section specifies contract provisions required to be included in a reinsurance contract for which a domestic insurer claims statement credit. The failure to follow a requirement does not result in a denial of statement credit, but rather a determination that the reinsurance contract is deficient as to form. One or more reinsurance contracts that are deficient as to form may be sufficient to support a finding that the insurer's reinsurance arrangements are materially deficient for purposes of Code Section 700(c) and 717(d).(b) A reinsurance contract shall be determined to be deficient as to form if it does not comply with each of the following requirements:1. If an agreement contains an "early termination" provision wherein a party may terminate the agreement upon the occurrence of specified conditions, the following requirements apply to a termination by the reinsurer: A. The basis for termination may not include the entry of an order of rehabilitation, conservation or liquidation against the ceding insurer.B. The provision shall require written notice to the ceding insurer of not less than sixty (60) days prior to the effective date of termination.C. The provision shall require signature upon delivery of the notice and may specify procedures to establish proof of attempted service if signature is refused.D. The provision may state that upon receipt of a notice sent by the reinsurer, the ceding insurer may consent to a lesser notice period.E. The provision may state that it shall not be construed to include termination of the contract for cause.2. If the contract provides for payments between the parties to be transmitted through an intermediary, the contract shall include the following provision: "Payments by [the ceding insurer] to the intermediary shall be deemed to constitute payment to (the reinsurer). Payments by (the reinsurer) to the intermediary shall be deemed to constitute payment to [the ceding insurer] only to the extent that such payments are actually received by [the ceding insurer]."
Notwithstanding this requirement, the parties to the reinsurance contract may agree therein that the reinsurer may make payment directly to the ceding insurer with notice of the payment sent to the intermediary.
(c) The reinsurance arrangements of a domestic may be determined to be materially deficient for purposes of Code Section 700(c) and 717(d) if (1) the arrangements include one or more reinsurance contracts that are deficient as to form, and (2) the aggregate amount of business ceded by the deficient contracts is an amount that equals or exceeds 25% of either the total premium or total liabilities as reported on the ceding insurer's most recent financial statement. "Total premium" and "total liabilities" include both direct and assumed business. "Total liabilities" is defined in Section 2303.15(h) of this article.(d) Reinsurance of individual risks pursuant to facultative certificates issued by the reinsurer shall not be required to comply with subdivision (b) of this section.(e) Section 2303.14 of this article shall not be construed as stating the only bases for a determination by the Department that a reinsurance agreement is deficient as to form or the reinsurance arrangements of a licensed insurer are materially deficient.Cal. Code Regs. Tit. 10, § 2303.14
1. New section filed 10-24-2006; operative 11-23-2006 (Register 2006, No. 43).
2. Change without regulatory effect amending subsections (b)1.B. and (b)2. filed 3-25-2015 pursuant to section 100, title 1, California Code of Regulations (Register 2015, No. 13).
3. Amendment of subsection (a), repealer of subsections (c)-(c)(2), subsection relettering and amendment of newly designated subsection (c) filed 11-27-2017; operative 1-1-2018 (Register 2017, No. 48). Note: Authority cited: Section 720, Insurance Code; CalFarm Insurance Company v. Deukmejian, 48 Cal. 3d 805 (1989); and 20th Century Insurance Company v. Garamendi, 8 Cal. 4th 216 (1994). Reference: Sections 700 and 717, Insurance Code.
1. New section filed 10-24-2006; operative 11-23-2006 (Register 2006, No. 43).
2. Change without regulatory effect amending subsections (b)1.B. and (b)2. filed 3-25-2015 pursuant to section 100, title 1, California Code of Regulations (Register 2015, No. 13).
3. Amendment of subsection (a), repealer of subsections (c)-(c)(2), subsection relettering and amendment of newly designated subsection (c) filed 11-27-2017; operative 1/1/2018 (Register 2017, No. 48).