18 Del. Admin. Code § 1004-7.0

Current through Register Vol. 28, No. 5, November 1, 2024

Section 1004-7.0 - Requirements applicable to covered policies to obtain credit for reinsurance; opportunity for remediation

7.1 Subject to the exemptions described in Section 4.0 of this regulation and the provisions of subsection 7.2 of this regulation, credit for reinsurance shall be allowed with respect to ceded liabilities pertaining to covered policies pursuant to 18 Del.C. §§ 911 or 912 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:

7.1.1 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 18 Del.C. § 1112 and related regulations and actuarial guidelines, and credit claimed for any reinsurance treaty subject to this regulation does not exceed the proportionate share of those reserves ceded under the contract;

7.1.2 The ceding insurer determines the required level of primary security with respect to each reinsurance treaty subject to this regulation and provides support for its calculation as determined to be acceptable to the Commissioner;

7.1.3 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 18 Del.C. § 912, on a funds withheld, trust, or modified coinsurance basis;

7.1.4 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 subsection 7.1.3 of this regulation, are held by or on behalf of the ceding insurer as security under the reinsurance treaty within the meaning of 18 Del.C. § 912;

7.1.5 Any trust used to satisfy the requirements of this Section 7.0 shall comply with all of the conditions and qualifications of 18 DE Admin. Code 1003, Section 12.0, except that:

7.1.5.1 Funds consisting of primary security or other security held in trust, shall for the purposes identified in subsection 6.2 of this regulation, be valued according to the valuation rules set forth in subsection 6.2 of this regulation, as applicable;

7.1.5.2 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 subsection 7.1.3 of this regulation;

7.1.5.3 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 subsection 7.1.3 of this regulation, 102% of the level required by subsection 7.1.3 of this regulation at the time of the withdrawal or substitution; and

7.1.5.4 The determination of reserve credit under 18 DE Admin. Code 1003, subsection 12.5 shall be determined according to the valuation rules set forth in subsection 6.2 of this regulation, as applicable; and

7.1.6 The reinsurance treaty has been approved by the Commissioner.

7.2 Requirements at inception date and on an on-going basis; remediation.

7.2.1 The requirements of subsection 7.1 of this regulation must be satisfied as of the date that risks under covered policies are ceded if such date is on or after the effective date of this regulation 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 subsections 7.1.3 or 7.1.4 of this regulation 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.

7.2.2 Prior to the due date of each quarterly or annual statement, each life insurance company that has ceded reinsurance within the scope of Section 3.0 of this regulation 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 subsections 7.1.3 and 7.1.4 of this regulation 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 subsection 7.1.3 of this regulation, unless either:

7.2.2.1 The requirements of subsections 7.1.3 and 7.1.4 of this regulation were fully satisfied as of the valuation date as to such reinsurance treaty; or

7.2.2.2 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 subsections 7.1.3 and 7.1.4 of this regulation to be fully satisfied as of the valuation date.

7.3 Nothing in subsection 7.2.2 of this regulation shall be construed to allow a ceding company to maintain any deficiency under subsection 7.1.3 or 7.1.4 of this regulation for any period of time longer than is reasonably necessary to eliminate it.

18 Del. Admin. Code § 1004-7.0

27 DE Reg. 682 (3/1/2024) (Final)