Section 2303.27 - Term and Universal Life Insurance Reserve Financing, Requirements for Covered Policies to Obtain Credit for Reinsurance; Opportunity for Remediation(a) Subject to the exemptions described in Section 2303.25 of this article and the provisions of Section 2303.27(b) of this article, credit for reinsurance shall be allowed with respect to ceded liabilities pertaining to Covered Policies pursuant to Code Sections 922.4 and 922.5 if, and only if, in addition to all other requirements imposed by law or regulation, the following requirements are met on a treaty by treaty basis: 1. The ceding insurer's statutory policy reserves with respect to the Covered Policies are established in full and in accordance with the applicable requirements of Article 3a of Chapter 5 of Part 2 of Division 2 of the Insurance Code, commencing at Section 10489.1, and related regulations, in Articles 12.3 and 12.4 of Subchapter 3 of Chapter 5 of Title 10 of the California Code of Regulations, commencing at Sections 2542 and 2544, respectively, and actuarial guidelines in the NAIC Valuation Manual, and credit claimed for any reinsurance treaty subject to Sections 2303.23 through 2303.28 of this article does not exceed the proportionate share of those reserves ceded under the contract; and2. The ceding insurer determines the Required Level of Primary Security with respect to each reinsurance treaty subject to Sections 2303.23 through 2303.28 of this article and provides support for its calculation as determined to be acceptable to the commissioner; and3. Funds consisting of Primary Security, in an amount at least equal to the Required Level of Primary Security, are held by or on behalf of the ceding insurer, as security under the reinsurance treaty within the meaning of Code Section 922.5, on a funds withheld, trust, or modified coinsurance basis; and4. Funds consisting of Other Security, in an amount at least equal to any portion of the statutory reserves as to which Primary Security is not held pursuant to paragraph 3 above, are held by or on behalf of the ceding insurer as security under the reinsurance treaty within the meaning of Code Section 922.5; and5. Any trust used to satisfy the requirements of this section 2303.27 shall comply with all of the conditions and qualifications of section 2303.7 of this article, except that: A. Funds consisting of Primary Security or Other Security held in trust shall, for the purposes identified in section 2303.26(b) of this article, be valued according to the valuation rules set forth in section 2303.26(b) of this article, as applicable; andB. There are no affiliate investment limitations with respect to any security held in such trust if such security is not needed to satisfy the requirements of section 2303.27(a)(3) of this article; andC. The reinsurance treaty must prohibit withdrawals or substitutions of trust assets that would leave the fair market value of the Primary Security within the trust (when aggregated with Primary Security outside the trust that is held by or on behalf of the ceding insurer in the manner required by section 2303.27(a)(3) of this article) below 102% of the level required by section 2303.27(a)(3) of this article at the time of the withdrawal or substitution; andD. The determination of reserve credit under Section 2303.7(g) of this article, shall be determined according to the valuation rules set forth in section 2303.26(b) of this article, as applicable; and6. The reinsurance treaty has been approved by the commissioner.(b) Requirements at Inception Date and on an On-going Basis; Remediation 1. The requirements of Section 2303.27(a) of this article must be satisfied as of the date that risks under Covered Policies are ceded (if such date is on or after the January 1, 2018 effective date) and on an ongoing basis thereafter. Under no circumstances shall a ceding insurer take or consent to any action or series of actions that would result in a deficiency under Section 2303.27(a)3. or 2303.27(a)4. of this article with respect to any reinsurance treaty under which Covered Policies have been ceded, and in the event that a ceding insurer becomes aware at any time that such a deficiency exists, it shall use its best efforts to arrange for the deficiency to be eliminated as expeditiously as possible.2. Prior to the due date of each Quarterly or Annual Statement, each life insurance company that has ceded reinsurance within the scope of Section 2303.24 of this article shall perform an analysis, on a treaty by treaty basis, to determine, as to each reinsurance treaty under which Covered Policies have been ceded, whether as of the end of the immediately preceding calendar quarter (the valuation date) the requirements of Section 2303.27(a)3. and 2303.27(a)4. of this article were satisfied. The ceding insurer shall establish a liability equal to the excess of the credit for reinsurance taken over the amount of Primary Security actually held pursuant to Section 2303.27(a)3., unless either: A. The requirements of Section 2303.27(a)3. and 2303.27(a)4. of this article were fully satisfied as of the valuation date as to such reinsurance treaty; orB. Any deficiency has been eliminated before the due date of the Quarterly or Annual Statement to which the valuation date relates through the addition of Primary Security and/or Other Security, as the case may be, in such amount and in such form as would have caused the requirements of Section 2303.27(a)3. and 2303.27(a)4. of this article to be fully satisfied as of the valuation date.3. Nothing in Section 2303.27(b)2. of this article shall be construed to allow a ceding company to maintain any deficiency under Section 2303.27(a)3. or 2303.27(a)4. of this article for any period of time longer than is reasonably necessary to eliminate it.Cal. Code Regs. Tit. 10, § 2303.27
1. New section filed 11-27-2017; operative 1-1-2018 (Register 2017, No. 48). For prior history, see Register 2015, No. 13 Note: Authority cited: Sections 922.85, 923 and 10489.94, Insurance Code; Cal-Farm Insurance Company v. Deukmejian, 48 Cal. 3d 805 (1989); and 20th Century Insurance Company v. Garamendi, 8 Cal. 4th 216 (1994). Reference: Sections 900, 922.4, 922.5, 922.85, 923, 10489.1, 10489.12, 10489.96 and 12921, Insurance Code.
1. New section filed 11-27-2017; operative 1/1/2018 (Register 2017, No. 48). For prior history, see Register 2015, No. 13